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European regulators have paved the way for British Airways, Iberia and American Airlines to work together.

The EU Commission said it would give BA and Iberia immunity from anti-trust laws that prevent businesses from co-ordinating prices and schedules.

Under the plan - which still needs US backing - the airlines would share costs, but give up four transatlantic take-off and landing slots.

The regulators also approved BA's merger with Spain's Iberia.

That deal - to create Europe's third-largest carrier - is aimed at helping both carriers cut costs as the industry struggles to make money.

The new company will be called International Airlines Group, but the BA and Iberia brands will continue to operate as normal.

The European Commission said it did not have any anti-competition concerns over the merger because the enlarged airline would continue to face competition from rivals, even on routes such as London-Madrid and London-Barcelona.

When the merger was confirmed, BA said the group would operate 419 aircraft, flying to more than 200 destinations, and carry a total of 62 million passengers a year.

Lease objection

Virgin Atlantic has been vocal in its opposition to the deal between BA and American Airlines which it described as a "monster monopoly".

Chief executive Steve Ridgway told the ����ý that BA already had the bulk of transatlantic flights from the UK, in particular out of Heathrow, and said that customers would suffer.

"BA and AA are not doing this to win a popularity contest. They're doing it because they want to dominate even more strongly these key markets across the Atlantic."

He added Virgin Atlantic would not be taking up the slots freed up by BA - because it objected to having to lease them.

"By offering the slots, they're saying there is potential harm to consumers and markets," Mr Ridgway said.

"We're being asked to pay to remedy some competition damage that's been done by this alliance."

'Vital step'

BA has argued that closer co-operation between the airlines will benefit passengers with more choice and lower fares.

It plans to begin the transatlantic business from the autumn, provided it gets clearance from the US Department of Transport.

"We await the DOT's final decision, but welcome this important and vital step forward," said BA chief executive Willie Walsh.

He added that the move to make some of its Heathrow slots available to competitors was a "pragmatic decision so that we can get the joint business up and running as soon as possible".

"The slot commitments provide a further guarantee that there will be no possible loss of competition as a result of our joint business," he added.