Stricken American Air thrown lifeline

THE immediate threat to US airlines of the Iraqi conflict has receded slightly after the pilots' union threw the stricken American Airlines a £420m olive branch.

But unease about the costs of a prolonged war was still growing - especially after a report in the German magazine Der Spiegel warned of further economic weakness in the European Union.

Airlines are bearing the brunt of the global economic and political uncertainty. AA's rivals - United Airlines, US Airways and Hawaiian Airlines - are languishing in bankruptcy protection. The International Air Transport Association has warned that losses on international air travel could reach £6.1bn this year.

The AA pilots' offer to accept cuts in pay and conditions - equal to a sixth of the £2.6bn of annual savings which AA needs to make to stay in the air - follows accords with other unions. If AA can bring its engineers on board and retain the support of its banks it may be able to avert a disaster certain to weigh heavily on consumer confidence.

Der Spiegel has painted a gloomy picture of the wider economy, publishing what it claims are revised 2003 EU economic growth forecasts for its 15 member states. It shows the UK's growth forecast falling from 2.5% to 2%, Germany falling from 1.4% to 0.4%, and France, from 2% to 1.1%.

The EU said its projections were not yet completed. But coming little more than a week ahead of Chancellor Gordon Brown's seventh Budget, the report will add to unease. Brown has twice admitted that he got his sums wrong and with many analysts predicting a long war, the odds are on a further deterioration.