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It has also brought fresh embarrassment to the Transport Secretary, Mr Nicholas Ridley, who has been roundly criticised recently for failing to reshape the UK commercial airline industry and make it more competitive in order to safeguard the planned privatisation of British Airways.

On top of that setback, Mr Ridley's decision to block cheap airline ticket across the Atlantic contrasts Starkly with his policy of promoting lower air fares and generating more competition.

But the row between Britain and America over cheap airline ticket demonstrates once again that free market competition is inadequate when dealing with a complex subject like international air traffic agreements, and that Mr Ridley has a big dilemma on his hands. The agreement governs all aspects of commercial aviation between Britain and America. But the two nations are starting to disagree over the interpretation of the agreement's wording.

Within a year Laker liquidators had slapped in writs against the big airlines, including British Airways, claiming that they had conspired to drive Laker out of business. The potential cost of the action would be up to pounds 1 billion. More seriously, though, the US Justice Department is pursuing an anti-trust suit against British Airways and others claiming that, through predatory fare-cutting, they pushed Laker out of business.

Britain has argued, with a singular lack of success, that UK airlines like BA should not form part of the anti-trust case because, under the Bermuda Two agreement, British carriers should be excluded from the effects of US domestic law.

But the debate has now been pushed to the forefront of US-UK negotiations on aviation policy after the major airlines, in moves reminiscent of the winter 1981 actions, sought to cut their fares to challenge the new Lakers - namely People Express of America and Virgin Atlantic of Britain.

Virgin Atlantic, led by the records millionaire, Richard Branson, objected on the grounds that the new fares were predatory. BA, Pan Am and TWA wanted to charge only pounds 1 more than Virgin for a return flight to New York, and big carriers like Pan Am and TWA were also prepared to throw in bonuses like cheap US domestic flights and free car rental.

Branson's comments car ried the implied threat that Virgin Atlantic, a one-aircraft airline, would shake the major airlines to their very foundations with another anti-trust suit. British officials, already uneasy about the Laker anti-trust suit, sought cast-iron assurances from the Americans that UK airlines like British Airways would be safe from any further anti-trust suits if the new fare proposals were accepted.