BA says in talks with U.S. airlines

LONDON (Reuters) - British Airways (BAY.L) said on Wednesday it was in discussions with U.S. airlines American and Continental, which a source briefed on the matter said was about a potential alliance.

"British Airways is exploring opportunities for co-operation with American Airlines and Continental Airlines," the company said in a brief statement, without elaborating.

American Airlines (AMR.N) confirmed it was in talks with BA. "AMR is exploring opportunities for cooperation with British Airways," a spokesperson told Reuters, although Continental could not immediately be reached for comment.

The source told Reuters earlier in the week that Continental (CAL.N) was in "advanced talks" with BA about an alliance, which would help the duo streamline costs while sharing revenues.

Air travel restrictions have eased under a U.S.-European Union 'Open Skies' agreement that took effect in March, which opened up new transatlantic routes for more airlines.

American Airlines and BA already have an alliance through the 10-member oneworld alliance, but have twice tried and failed to win immunity for it from the government.

Immunity is required if the partnerships are not to be seen as collusive.

The BA spokesman would not comment on the possibility of a full blown merger, but ABN AMRO analyst Andrew Lobbenberg said that it would not be allowed by regulators.

"It couldn't (merge). The regulators would not allow it," he told Reuters.