BA, American, Iberia deal possible soon: source

LONDON/NEW YORK (Reuters) - British Airways Plc , AMR Corp's American Airlines and Spain's IBERIA (IBLA.MC) are close to forming a transatlantic partnership that would apply for antitrust immunity, a source briefed on the matter said on Thursday.

The airlines could reach an agreement on revenue sharing within a week, creating a new force dominating air travel between the hubs of southeast Britain and the United States and helping the carriers cope with skyrocketing fuel costs.

Talks between BA, American and Iberia were "making good progress," although there was a small chance things could fall apart, the source said.

BA head of investor relations George Stinnes confirmed the talks were ongoing, although he would not comment on the ultimate goal. The airline first said it was in unspecified discussions with American in April.

"We are talking about what makes sense to do together -- what would be best and most effective," he told reporters.

"The truth is one could find something sensible tomorrow, or could never find it. To try to put a time scale on it is unrealistic," he added.

A deal would follow the lead of U.S. airline alliances like the one between UAL Corp's United Airlines and Continental Airlines Inc .

BA shares rose 2.7 percent to 209 pence. AMR shares closed up 4.6 percent, or 21 cents, at $4.83 on the New York Stock Exchange. Iberia closed unchanged at 1.37 euros.

Miguel Blesa, chairman of Iberia's largest shareholder Caja Madrid, said last month Iberia and BA were in talks about an alliance, but not a merger. BA owns 13.5 percent of the Spanish airline and attempted to acquire it last year.

American already has separate agreements with BA and Iberia, but there is as yet no venture among the three. Iberia declined to comment, American said it had already confirmed it was in talks with BA about closer cooperation but declined further comment on Thursday.

A partnership between American and BA could give the two carriers a combined market share of 50.6 percent on routes between London and the United States. Currently, American has 14.1 percent of that market, while BA has 36.5 percent, according to the Official Airline Guide.

The U.S. Justice Department would take a hard look at a deal once it was finalized, said Barnard Nigro, an antitrust attorney with Willkie Farr and Gallagher.

"Given the relative positions of the airlines and some of the hubs, it seems likely that this will get a close look," he said. "It's hard to say what the outcome would be."

The European Commission said it would look at the deal when the time came. "To the best of my knowledge we have not had any approaches from these airlines so far, and the Commission's attitude would depend very much on what they were planning to do," said commission spokesman Jonathan Todd.

THIRD TIME LUCKY?

American and BA have tried and failed to gain antitrust immunity twice before, but are now likely to argue a case with U.S. regulators that the competitive landscape has been changed by the "open skies" agreement.

The agreement between the United States and the European Union came into force in March, allowing airlines to access any U.S. city from any point in the European Union, and vice versa.

"They will say the market is more competitive. Access to Heathrow is now available, albeit at a price. Other airlines can get slots and launch more services," said Panmure Gordon analyst Gert Zonneveld.

Several analysts have predicted alliances between U.S. and foreign carriers like the joint transatlantic service offered by Northwest Airlines Corp and its European partner KLM Royal Dutch Airlines, part of Air France-KLM .

Airline consultant Michael Boyd praised the potential American/BA/Iberia partnership.

"This one tends to fit like a glove," Boyd said. "You've got some synergies there; it seems to make a lot of sense."

BA and American are expected to argue that the recent wave of mergers and new alliances has strengthened many of their biggest transatlantic rivals, which already have antitrust immunity with partners across the North Atlantic.

The pair have struggled to gain immunity themselves because of their dominance at London's Heathrow. BA has 40 percent of slots at the world's busiest airport, while in 2006 the duo held over half the capacity between southeast England and the United States between them.

(Additional reporting by Ben Harding and Jason Webb in Madrid, Ajay Kamalakaran in Bangalore and Kyle Peterson in Chicago; Editing by David Holmes and Gerald E. McCormick)