LONDON (Bloomberg) — Airlines aiming to challenge British Airways Plc on trans-Atlantic routes under the "Open Skies" accord between the US and the European Union may find themselves shut out of Europe's busiest airport.The agreement is supposed to expose British Airways to more competition from March by removing restrictions on US carriers flying into London's Heathrow airport. In fact, the UK's flagship carrier may benefit from the accord as Heathrow is effectively locked shut to new entrants, with only three percent of terminal landing slots up for grabs. British Airways reports earnings tomorrow for the three months ended March 31.

"Open skies is not as big a threat to British Airways as some in the market seem to think it is," said Tim Marshall, an analyst at UBS Ltd. in London with a "buy" recommendation on the stock. "British Airways has an unassailable lead in its slot portfolio at Heathrow."

While the air services agreement will grant new carriers the right to fly to Heathrow, it doesn't give them the terminal slots they need to actually take off and land. British Airways has 41 percent of those slots, helping Europe's third-biggest carrier limit competition in its most lucrative business segment, flying business travellers between the US and Europe.

With traffic between Heathrow and the US accounting for 40 percent of trans-Atlantic air travel, demand for slots is so high that Qantas Airways Ltd. paid $20 million ($40 million) in 2004 to buy four slots from Flybe, a low-cost carrier. British Airways has about 3,900 slots a week.

British Airways shares rose 2.7 percent to 503 pence as of 1 p.m in London. The shares have declined 4.4 percent since the new air services agreement was approved March 22, compared with a 4.1 percent rise in the FTSE 100 Index.

Six of eight analysts surveyed by Bloomberg since "Open Skies" was approved say the stock price will recover.

"Concerns on open skies are overdone," said Marshall of UBS, who has a 650-pence price target on the shares.

Since 1993, airlines have enjoyed so-called "grandfather rights" guaranteeing them their existing take-off and landing slots at European Union airports forever as long as they use them 80 percent of the time. The "Open Skies" agreement has no provision to void those rights; incumbents can sell or lease them for whatever price they can get.

Intent on muscling in, Continental Airlines Inc. and Delta Air Lines Inc. say they want to fly between the US and Heathrow, the world's third-busiest airfield after Atlanta's Hartsfield-Jackson International Airport and Chicago's O'Hare, with 67 million passengers a year.

The only way for them to get slots "is for the US wannabes to lease, borrow, cajole, or buy from their European alliance partners," said Chris Avery, an airline analyst at JPMorgan in London. Avery rates British Airways' shares "neutral".

"Open Skies" was approved by EU ministers on March 22. The EU's highest court said in 2002 that treaties the US had negotiated individually with the UK and other EU nations violate the bloc's common-market rules, spurring attempts to reach a single US-EU agreement on trans-Atlantic flights.

The new accord will allow EU airlines to fly to the US from any of the bloc's airports, instead of just their home countries. It will also break the lock British Airways, Virgin Atlantic Airways, AMR Corp.'s American Airlines and UAL Corp.'s United Airlines have had on trans-Atlantic flights to and from Heathrow under a 1977 US-U.K. agreement.

Heathrow's fast transport connections to central London and its position as a hub for flights to other European destinations make it popular among trans-Atlantic business travellers. Business-and first-class seats on trans-Atlantic routes generate some 60 percent of revenue at British Airways, according to its latest public break-down of sales figures.

The trans-Atlantic market is worth an estimated $22 billion to US and EU-based carriers, according to Daniel McKenzie, a New York-based analyst at Credit Suisse. Heathrow access can mean the difference between an airline winning or losing large corporate travel accounts, he wrote in a March 22 note to investors.

"Not being able to offer that in corporate deals does hamper us," said Delta chief executive officer Jerry Grinstein in a call with analysts on April 23. "We are aggressively working on it, and we intend to be there the first day."

Just one percent of the market could mean a net $50 million a year for Continental, McKenzie estimated.

Attacking British Airways' dominance in the market would require more than just winning a few slots.

"An important criteria for business travellers remains schedule and the choice of flexible flight times," UBS's Marshall said. Continental and Delta "will struggle to build a schedule to rival British Airways' 11 daily flights to New York".

The few slots available for new entrants to Heathrow are at the periphery of the airport's working day, at times generally unsuited to trans-Atlantic travel.

"While it's not impossible to obtain slots at convenient times, it's not easy and as new entrants will discover, it's certainly not cheap," said British Airways chief executive officer Willie Walsh. "We believe we're in an excellent position to benefit from the new open skies arrangements."

The right to a slot every day of the year can cost an average of $6 million in the grey market, according to Airport Coordination Ltd., which coordinates the slots. That can rise, depending on the time of day.

The slots are so highly prized that some airlines are willing to spend money to retain them. British Mediterranean Airways Ltd., a former British Airways franchise, ran empty flights between Cardiff, Wales and Heathrow to keep its slots, according to Airport Coordination.

"There is no doubt that interest from US carriers will increase the value of the slots British Airways already has," said Gert Zonneveld, an analyst with Panmure Gordon in London, who has a "hold" recommendation on British Airways shares.

US carriers may struggle to buy entry.

"There are a lot of willing buyers, but very few willing sellers," said Peter Morrisroe, head of Airport Coordination. "With new US carriers having access to Heathrow, I am sure they are knocking on every airline's door at Heathrow and saying: 'Would you be interested?'"

BMI, a closely held UK carrier, holds 11 percent of Heathrow slots and plans to announce details about its first service between the airport and the US in the third quarter of this year.

"The value of the slots will go up," BMI's chief executive officer Nigel Turner said in an interview. "We know that, but we're not selling."

US carriers could seek to buy slots from their alliance partners. Delta, the third-largest US carrier, is a member of the SkyTeam alliance and could seek slots from partner Air France-KLM, the largest airline in Europe, which has 162 slots a week. Continental, the fourth-largest US carrier, and Northwest Airlines Corp. are also members of the same alliance.

Relying on partners to buy slots was dismissed by Steve Ridgway, Virgin Atlantic's chief executive officer, in an e-mailed response to questions.

"Why in the current climate would any airline sell such prized assets?" said Ridgway.

Heathrow ought to be open to newcomers, said Lawrence Hunt, chief executive officer of Silverjet Plc, a business-class only airline that operates flights to New York out of Luton, London's second-smallest airport.

"I find it quite astounding that in the 21st century I am not able to go and negotiate with an airport for slots or with partners and other commercial interested parties to operate from an airport, because of some Byzantine agreement," Hunt said.

The slots occupy a legal grey area, with Heathrow airport owner and operator BAA Plc, the UK government and carriers all claiming ownership rights, according to Morrisroe of Airport Coordination.

The European Commission, the EU's regulatory arm, aims to propose legislation by the end of this year including provisions on "market mechanisms" in the allocation of slots.