The Justice Department’s Antitrust Division came out swinging in an administrative filing yesterday, objecting to a proposed alliance — known as Oneworld – between American Airlines, Inc. and British Airways PLC, and suggesting that the Transportation Department should take a tougher stance than it has on recent similar alliances.

Justice stopped short of rejecting the airlines’ application, which asks for permission to jointly schedule and price flights without running afoul of any antitrust laws. Instead DOJ suggested conditions the Transportation Department (DOT) should impose before approving the deal, including forcing the airlines to give up some slots and take certain routes out of any grant of immunity.

DOT has ultimate authority over approving such applications, and the Justice Department’s role is only advisory.

The two departments argued over a similar application earlier this year by Continental Airlines, which sought to join the Star Alliance. Then the Transportation Department brushed aside most of DOJ’s concerns and approved the deal.

Observers say the Justice Department’s new filing takes a stronger stand. Justice “vigorously waded into this dispute by not only taking on the Oneworld Alliance but taking a swipe at the Star Alliance,” said Kenneth Quinn, a partner at Pillsbury Winthrop Shaw Pittman. who co-heads the firm’s aviation group.

“The Justice Department is taking a strong pro-consumer stand that will not be lightly ignored by DOT.”

In addition, Sens. Herb Kohl (D-Wis.) and Orrin Hatch (R-Utah) had previously sent letters to Transportation Secretary Ray LaHood urging his agency to consider and give “substantial deference” to Justice Department views before signing off on any proposed airline deals.

Lawmakers also have threatened to move authority over airline alliances from the Transportation Department to DOJ.

The Justice filing in the Continental-Star Alliance agreement came after DOT had already given its preliminary approval, but in the Oneworld case, DOJ weighed in first; the Transportation Department has yet to issue a decision. In an order today, the Transportation Department said it would accept comments on the filing until Jan. 11.

Highlights of DOJ Filing. The Justice Department filing focused on competition on nonstop routes between American’s hubs in Chicago, Miami and Dallas and British Airways’ hub in London. Fares on those flights could increase by 15 percent if the agreement was implemented without changes, the filing said.

“Fares paid by nonstop passengers in markets with only one nonstop competitor are 15 percent higher than fares paid by nonstop passengers in markets with two nonstop competitors,” the filing said.

The filing also singled out concentration at Heathrow Airport in London, the popular British Airways hub where slots are notoriously difficult to get, and asked that the two airlines give up some slots in order to mitigate anti-competitive effects of the agreement.

The alliance between British Airways and American Airlines does have the benefit of following an open skies agreement negotiated between the United States and the U.K., said Jim Weiss, a partner at K&L Gates who previously worked in the Antitrust Division, which makes antitrust regulators more amenable to approving the deal. The carrot of antitrust immunity has been used to foster liberalization in international aviation. 

An American Airlines spokesman said the airline “disagrees” with the Justice Department’s conclusions, and “expects that the U.S. Department of Transportation will approve our alliance in a timely manner.”

Previous Request. The airlines applied for antitrust immunity twice before, in 1997 and 2001, in order to enter into a similar alliance.

DOJ argued against those applications and said any deal would reduce competition on routes where the two airlines overlapped. The first application was rejected because of separate policy developments.

After the 2001 application, DOJ asked the airlines to divest certain slots on overlapping flights to encourage new competition, but the airlines withdrew their application before DOT ruled on the alliance.

American Airlines and British Airways will have to wait longer to get a green light from antitrust regulators on their proposed alliance to schedule, price, and market flights jointly, according to a story this morning in the Wall Street Journal.

The delay, the Journal said, comes because the Justice Department’s Antitrust Division and the Department of Transportation have not resolved their differences over the competitive aspects of the deal.

A ruling, originally due on Oct. 31, will be pushed back for at least two weeks, according to the Journal’s unnamed sources.

“There are some long standing and deeply ingrained differences in approach between the Justice Department and the Transportation Department,” Kenneth Quinn, a former DOT lawyer and current co-head of the aviation practice at Pillsbury Winthrop Shaw Pittman, said in an interview with Main Justice.

While Justice tends to focus on competition in specific flights–JFK to Heathrow, for example–the Transportation Department looks at the broader implications and connections between flights for travelers, Quinn said.

The inter-agency fight is a repeat of disagreements over a similar deal that Continental struck with nine airlines in the Star Alliance earlier this year. Then, White House economic advisor Lawrence Summers was called in to mediate. Maybe he should expect another call. “I wouldn’t be surpised to see this also come to a head,” Quinn said.

American Airlines and British Airways likely will get approval for their plan jointly to market, schedule and price flights, despite antitrust concerns, Bloomberg reported. The development was a sign the Justice and Transportation Departments have resolved most of their conflicts over the issue.

The Justice Department opposed a similar deal that Continental struck with nine airlines in the Star Alliance earlier this year. But Transportation officials had already given their informal approval. The Antitrust Division and Senate Judiciary Committee Democrats argued the partnership would limit competition and harm consumers.  The Transportation Department has final authority over such arrangements.

The fight between the two departments spilled over onto the front page of the New York Times, which reported that White House economic adviser Lawrence Summers was called in to mediate.

This time, he probably won’t get a call.

“You are going to see better coordination” between the Transportation and Justice Departments, former Transportation official Patrick Murphy told Bloomberg. Transportation officials have until the end of the month to issue a formal ruling.