Shares in British Airways fell as much as 10% on Monday, after the United States and Europe agreed to the outlines of a pact that could weaken the airline's position on profitable transatlantic flights.
The European Commission said on Friday it had reached a provisional agreement with the United States over a so-called "open skies" deal to open their transatlantic aviation markets in a bid to boost traffic and jobs.
Analysts said British Airways had most to lose from a deal, because it would open up competition on flights from London's Heathrow Airport to the United States.
The lucrative transatlantic route contributes a major slice of BA's profits and increased competition could drive down fares, hitting the airline's revenues.
Currently, direct transatlantic flights from Heathrow are limited to British Airways (BA), Virgin Atlantic, United Airlines and American Airlines.
"From BA's perspective, the negative is the breaking-up of the cartel (over flights from) Heathrow to the U.S.," said Exane analyst Nick van den Brul.
"Any time you break up a cartel the implication is that prices are going to fall and everybody knows that BA's yields on the north Atlantic are what drives its profits."
Deutsche Bank analysts estimated the deal could lead to a 15% decline in prices on transatlantic flights, and that this could hit BA's revenues by 491 million pounds ($944 million) in the first year of implementation.
BA shares were down 7.4% at 492 pence, the biggest fall on the U.K.'s benchmark FTSE-100 index and valuing the firm at about 5.7 billion pounds.
The United States and Europe have been working for years on a way to increase competition between EU and U.S. airlines and replace bilateral agreements between Washington and some EU member nations with a broader pact to include more countries.
But a tentative deal in November 2005 has remained in limbo after Washington withdrew a proposal that would have eased restrictions on foreign investment in U.S. airlines.
The provisional deal reached on Friday sought to address EU concerns about ownership and control.
Washington will not change rules limiting foreign ownership of voting rights in U.S. carriers to 25%, but the pact would make it easier for EU companies to buy up to 100% of non-voting shares, sources familiar with the deal said.
BA, however, was not impressed.
"We don't believe it's a good deal for Europe or the U.K.," a spokeswoman said.
European Transport Commissioner Jacques Barrot warned on Monday of "a legal mess" if European governments did not back the new agreement.
"In the next few weeks, I will ask transport ministers to look hard at this agreement," he said in a speech to industry executives here. "I hope we can go ahead. But I am not ready to predict the outcome."
Barrot acknowledged BA's concerns, but said it could benefit from the deal which the EU expects to generate 26 million additional transatlantic passengers over the next five years.
"I think BA needs to look beyond (the current arrangements at Heathrow)...It could well become the prime beneficiary," he said.
BA also said on Monday that it would take an extra 20-million-pound charge on the sale of its regional business, BA Connect, to Flybe.
Traders said its shares were also suffering from news that pilots at its GB Airways franchise were voting on possible industrial action over the Easter holidays in a dispute over working practices.