BA Chief Executive Willie Walsh said industry consolidation would be crucial to help airlines survive tough market conditions including high fuel prices and slowing demand from the current global financial meltdown.

'Part of fixing the industry will be consolidation,' Mr Walsh told an international aviation forum here.

'There must be freedom to consolidation. We've got to be able to move beyond artificial restriction,' he said, citing laws that prevent or cap foreign ownership and control of domestic airlines.

His comments come amid an application by BA to US authorities to seek closer ties with American Airlines.

BA and American Airlines are seeking immunity from US antitrust laws to work together in setting prices and schedules on trans-Atlantic flights. The alliance would also include Spain's Iberia SA, Finnair and Royal Jordanian.

The alliance with an antitrust exemption is the closest thing to a full merger that the airlines can form without violating limits on foreign ownership of US airlines.

The airlines are already part of the Oneworld alliance, in which they sell tickets on each other's airlines and give reciprocal miles but can't work together on ticket pricing.

Mr Walsh said he was confident BA would win the application.

'If we are not successful, it would represent a major step backward' for the industry, he said.

Mr John Byerly, the deputy assistant secretary for transportation in the US State Department, told the forum that the US is favorable on liberalising investment rules, but there are many hurdles due to some 3,500 bilateral air agreements it has globally.

'We have an open mind but ... liberalising investment rules in the US is going to be a very tough case,' he said. -- AP