The European Union has launched an investigation into the proposed tie-up between British Airways (BA) and American Airlines (AA).

The inquiry will look into whether the BA-AA deal is a threat to competition on transatlantic routes.

BA, AA and Iberia, the Spanish carrier, announced two weeks ago that they would seek approval for the tie-up from regulators in the US and Europe.

If anti-trust immunity is granted, the carriers will effectively merge their transatlantic operations, although not the parent companies.

It will enable BA and AA to jointly set ticket prices, schedules and will also allow them to share costs such as fuel.

The plan has been criticised by Virgin Atlantic, which gave warning that the combined BA-AA would control over 60 per cent of flights from Heathrow to New York.

Steve Ridgway, chief executive at Virgin Atlantic, said: "The proposals would create a monster monopoly, which would mean that BA/AA and Iberia would be way too dominant on key routes into and out of Heathrow airport."

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