British Airways has ruled out an alliance with American Airlines, after US watchdogs attached tough conditions for the deal to go ahead. BBC News Online takes a closer look.
Why did the airlines want to link up?
British Airways and American Airlines would have been allowed to coordinate their ticket pricing and flight schedules.
That would protect them from the need to fight for market share and undercut each other's prices now that demand for transatlantic flights is so weak.
Air travel, especially across the Atlantic, has been sharply down following the 11 September terrorist attacks.
British Airways chief executive Rod Eddington has previously stressed that the suffering airline industry needs to consolidate in order to survive.
A tie-up was first proposed five years ago, but the recent difficulties had prompted renewed efforts to push a deal through.
What concessions were being demanded by the authorities?
British Airways would have had to surrender 224 of the lucrative Heathrow landing slots to US carriers - sufficient for 16 daily flights.
US Transport Department officials said the agreement would allow four new US airlines to fly to and from Heathrow.
The concession was designed to ensure the market remains competitive despite the cooperation between the two airlines.
The other concession was that final approval is being withheld until the US and UK sign an "open skies" agreement.
What is 'open skies' all about?
'Open skies' commits both sides to liberalise the market for air travel between the two countries.
That means the airlines would be given complete access to the airports of the other country.
The US and the UK failed in 1999 to reach a bilateral agreement because of reluctance to open up London's Heathrow airport, the world's busiest international airport.
The situation is further complicated by the European Commission, which wants an agreement between all 15 EU member states and the US rather than a bilateral agreement.
The Commission argues that the best deal for member states can only be struck by pooling their negotiating strength.
But not all member states agree, further delaying the process.
Talks between US and UK officials on open skies were due to resume on Monday, but were postponed after the deal was called off..
How did other airlines react to the news?
Disapprovingly.
Virgin's Sir Richard Branson was particularly against the deal, probably because only US airlines would be given access to the landing slots.
"It is an effective merger and we will be fighting very hard to stop this happening," Sir Richard told BBC News 24.
He also claimed that other North American airlines such as Delta and Continental did not think that access to more landing slots at Heathrow would compensate for the effects of collusion between their rivals.
Mr Branson said he would put pressure on the European Commission to stop the alliance.
What will happen to BA and AA now?
The two airlines have issued a statement saying the conditions the US authorities wanted to put on the deal were too tough.
So unless there is a change of heart by the US Transport Department the deal is effectively off.
BA and AA said they would continue to develop their relationships within the Oneworld alliance, which has a less rigid form of cooperation.
They pledged to "continue to give passengers access to each other's networks" to the extent that they can "within the existing legal boundaries."