BA said the European Commission's proposals that it should immediately surrender hundreds of its slots at Heathrow airport as a condition for the full alliance were "commercially unacceptable".

It plans to call for a gradual opening up of the world's busiest international hub.

The UK's national carrier said that, in the meantime, it planned to concentrate on its multi-lateral oneworld grouping.

The decision also means it is now unlikely that the UK and the US will soon agree a new "open skies" deal to liberalise air services between the two countries.

Plans for an alliance between the two airlines were first announced in June 1996.

The European Commission said BA and AA should give up 267 weekly slots at Heathrow and Gatwick airports without charging for them.

The respective governments have yet to rule on the partnership which would need anti-trust immunity from the US authorities for them to be able to co-ordinate schedules and fares.

Industry consolidation

If the alliance does eventually go ahead it will create one of the biggest airline networks the world has ever seen.

Customers will only have to buy one ticket to use both airlines and fly to destinations around the world.

Between them, the two airlines control 65-70% of the New York to London traffic and virtually all traffic on key routes like London to Dallas, Fort Worth, where they are the main operators.

The deal between BA and American Airlines is part of the rapid consolidation of the world's airline industry.