Germany's Deutsche Lufthansa took a 20 per cent shareholding in British airline British Midland yesterday in a move landing it too close for comfort on British Airways' Heathrow airport home patch.
Lufthansa said it had taken half of a 40 per cent interest in British Midland held by Scandinavian Airlines Systems for £91.4 million sterling as it welcomed Midland into the German-US-led Star global airline alliance.
Midland's 200 takeoff and landing slots give Star 27 per cent of Heathrow slots, placing it second behind the Oneworld global alliance led by British Airways which has 41 per cent. Negotiations on Aer Lingus' entry to the Oneworld grouping are continuing.
When Lufthansa's designs for British Midland were first unveiled last month, BA accused the German carrier of anti-competitive behaviour and said it would lodge a complaint with European Union officials.
But it softened its stance yesterday, saying it would instead ask the EU to draw up clear rules governing airline alliances - partnerships that are reshaping the global airline landscape.
Analysts said Lufthansa had paid a high price for the British Midland stake but they applauded the strategic logic of the move.
The airline, which operates routes linking British cities domestically and within centres on the continent, will be able to tailor its flight schedules - including those between Dublin and London - to connect with its new partners.
But what is perhaps more attractive to Star, the deal could allow Star's US partner United Airlines to use British Midland slots for travel between London and the United States.
That would only be possible to a significant extent, however, once Britain and the United States enjoy an open skies agreement liberalising air travel between them.
Such a deal has been stalled for years and currently only four carriers - BA, United, American Airlines and Virgin Atlantic - can fly from Heathrow to US cities. British Midland argues that this means travellers pay more to fly to the US from London than from other European cities.
British Airways said in a statement that it did not object to Midland's deal in principle. "But we would expect these developments to be examined by the regulators for their effect as much as for their precedents," it said.
Star Alliance also includes All Nippon Airways, Air Canada, Thai Airways, Ansett Australia, Air New Zealand and Varig. Austrian Airlines, Mexicana Airlines and Singapore Airlines will join Star in 2000.
