British Airways and American Airlines announced plans yesterday to reshape the airline industry with a deal that could herald the creation of a supercarrier.

BA and AA have applied to regulators in the United States and Europe for antitrust immunity that would permit them to combine their route networks, pricing, sales, marketing and purchasing power. Iberia, the Spanish airline; Finnair and Royal Jordanian are included in the submission but are secondary players.

All five carriers are members of oneworld, a marketing group that allows airlines to sell connecting flights offered by other members. The new alliance would go much farther:

- BA and AA would no longer compete against each other on key routes; rather than offering head-to-head flights, they would spread them to provide greater flexibility.

- Passengers would be offered both BA and AA fares when they booked.

- Frequent-flyer miles would be honoured throughout the alliance, enabling passengers to redeem BA miles with AA, for example.

- There would be cost-saving opportunities through the bulk purchase of fuel, aircraft and ground services.

Ownership of the airlines would not change, although the proposed alliance is regarded as a precursor to a full merger, should the US Government amend its rules on the foreign ownership of domestic airlines. BA and Iberia are already engaged in talks on a full merger.

Willie Walsh, the chief executive of BA, said: “This will allow us to combine our networks so we can sell a greater range of destinations to passengers.” This is the third attempt by BA and AA to join forces. The previous efforts, in 1997 and 2001, failed because regulators insisted on the pair giving up Heathrow landing slots to reduce their dominance at the world’s busiest international airport.

Mr Walsh said that this would no longer be an issue because of the US-EU open-skies agreement that began this year, whereby any airline, in theory, can operate from Heathrow.

Virgin Atlantic has said that it will challenge the alliance on antimonopoly grounds because the proposal would make BA even more powerful over the North Atlantic.

Sir Richard Branson, of Virgin Atlantic, said: “Make no mistake - if this monster monopoly is approved it will be third time unlucky for consumers. It will still be bad for passengers, bad for competition and bad for the UK and US aviation industry.”

Mr Walsh said: “Branson has been beating this drum for years. He has not come up with one new or convincing argument against this deal.”

BA noted that antitrust immunity had been granted to other airline alliances, such as Air France and Delta and United and Lufthansa, so there was no reason why its own should be blocked.

The proposed tie-up emerged on the day Washington recommended that AMR, the parent of AA, be fined $7.1 million (£3.8 million) for allegedly flying aircraft it knew needed repairs. Aviation authorities accused AMR of flying two aircraft without attending to necessary maintenance throughout last year and of having poor alcohol and drug-testing procedures.

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