British Airways is scaling back plans for a fully fledged alliance with American Airlines because the price demanded by regulators on both sides of the Atlantic is too high, according to observers close to the company.

BA has been alarmed by regulators' recommendations that it must give up hundreds of Heathrow take-off and landing slots, free of charge, in return for approval of plans to create the world's most powerful airline partnership.

In a shift of tactics, BA is pressing the British government to reach an aviation agreement with Washington which would open Heathrow airport to competition gradually, rather than on the first day of a new accord.

A gradual liberalisation of the British air market would fall short of the "open skies" agreement Washington has demanded as the price for approving BA's planned alliance with American Airlines.

Delayed liberalisation would also be a disappointment to Washington and to US airlines demanding access to Heathrow. Under the existing British-US agreement American and United Airlines are the only US carriers permitted to use Heathrow.

Observers say BA wants the British to strike a deal with Washington similar to the agreements the US reached with France and Japan this year.

These provided for gradual liberalisation rather than immediate open skies. Japan will move to full open skies over four years and France over five years.

BA announced its planned alliance with American in June 1996. The partnership requires antitrust immunity from the US authorities which would allow the airlines to co-ordinate fares and flight schedules.

The European Commission has said BA and American should give up 267 weekly slots free of charge at London's Heathrow and Gatwick airports. The British and US governments have yet to rule on the alliance.

BA would use the transition period to conclude a code-sharing agreement with American, which would allow them to sell seats on each other's flights but not set fares jointly.

The two airlines would then hope to receive antitrust immunity when the transition to open skies was completed. This would mean Heathrow slots could gradually be transferred to rivals, limiting disruption to BA and American's services.

Talks aimed at concluding an open skies agreement broke down in London earlier this month when the US walked out, saying Britain appeared uninterested in resolving differences between the two countries.

The British government is understood to be aware of BA's interest in a phased liberalisation deal but has not yet raised it formally with the US.