The liberalisation of air travel between Europe and the United States is expected to initiate a spate of airline mergers and acquisitions.

The open skies agreement allows European airlines to fly from any European city to the US, ending the old system of competition-limiting bilateral treaties.

Analysts believe that smaller national carriers will struggle to compete with airlines such as Virgin, which said yesterday that it was interested in acquiring BMI, with which it last had merger talks in 2003.

Virgin also revealed plans to launch routes from Amsterdam, Frankfurt, Milan and Madrid within two years. This will put pressure on airlines such as Alitalia, Iberia and Aer Lingus to find larger partners.

Shares in Iberia, the Spanish carrier that is 10 per cent owned by British Airways, have risen 18 per cent in the past week in anticipation of takeover approaches. Aer Lingus, which fought off a £1 billion bid from Ryanair last year, has seen its share price rise 12 per cent in the past week.

The likely consolidators are Lufthansa, which has expressed an interest in Alitalia; AirFrance-KLM; and British Airways.

Willie Walsh, the chief executive of BA, said yesterday that his company was not “actively pursuing” Iberia at present.

BA hopes that the open skies agreement will be extended in 2010 to allow European companies to own American carriers — at present they are limited to 25 per cent of voting shares. This could finally trigger the long-awaited merger with American Airlines.

Mr Walsh said: “This agreement may make it easier to do intra-European and may also encourage intra-US deals but we have to have a fully open aviation agreement for global consolidation to take place.”

Speculation continues to surround interest from Middle Eastern bidders for European airlines, particularly BA. This could become more likely if air liberalisation deals are agreed between the EU and other regions.

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