The U.S. Justice Department said AMR Corp.'s (AMR) American Airlines unit and British Airways PLC (BAIRY, BAY.LN) need to make concessions to secure its approval for a planned extension of their Oneworld alliance.

The DOJ said granting U.S. antitrust approval to alliance members could result in "competitive harm" on six transatlantic routes if allowed in its proposed form.

The recommendation sets up a potential confrontation with the U.S. Department of Transportation, which has final say on airline-competition policy and which has already overruled the Justice Department on a similar application from rival carriers earlier this year.

The Transportation Department was due to make its preliminary judgment by the end of October, but delayed this while talks continued with the Justice Department.

U.S. competition officials in the Obama administration are taking a harder line in some sectors than during the previous administration. The Justice Department's decision to issue separate comments on Oneworld suggests it couldn't reach agreement with Transportation Department officials.

The Justice Department dismissed many of the detailed arguments made by BA, American and three other Oneworld members--Iberia Lineas Aereas de Espana SA, Finnair and Royal Jordanian Airlines. The airlines and the Transportation Department weren't immediately available for comment.

The Justice Department proposed the airlines give up slots at congested airports or make concessions on six routes--including five from London's congested Heathrow Airport--it viewed as "concentrated."

British Airways and American have twice tried and failed to secure immunity to coordinate fares, schedules and marketing. Previous efforts were dropped because regulators' concessions were seen as too onerous.

The Justice Department didn't specify how many slots might need to be surrendered to secure its backing, though it suggested that route "carve outs" and other concessions may be a better potential remedy.

The Oneworld members are seeking parity with immunity already granted to the rival Star and SkyTeam groupings. The Oneworld members argued that the U.S.-E.U. open-skies deal had leveled the playing field, and members have said they saw no need for slot or route concessions.

European regulators have already voiced their concerns about the Oneworld proposal.

-By Doug Cameron, Dow Jones Newswires; 312-750-4135; doug.cameron@dowjones.com
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