2nd UPDATE:Branson:Can't Assure Virgin Survival If Air Alliance Approved

Virgin Atlantic Airlines President Richard Branson said Thursday a proposed alliance led by AMR Corp.'s (AMR) American Airlines and British Airways PLC (BAIRY) would be "absolutely disastrous" for industry competition and threaten some carriers' survival, including his own.

Members of the Oneworld Alliance, including American, BA and others, are awaiting approval from the U.S. Transportation Department for antitrust immunity, which would allow them to cooperate on scheduling and revenue sharing.

Branson said such an alliance would be akin to a merger of Coke and Pepsi, adding that the alliance would give two industry giants unparalleled pricing and scheduling advantages over competitors.

While Branson characterized the alliance as a "merger" of BA and American, American contends that the alliance would not be a merger.

The result for passengers, employees and "fair and healthy competition will be absolutely disastrous," said Branson, speaking at a breakfast organized by the National Press Club in Washington. "It will be the end of red-hot competition."

Asked whether Virgin Atlantic could survive if a BA-American alliance is approved by U.S. regulators, Branson said, "It would be very difficult."

"I cannot guarantee Virgin Atlantic's survival if BA and AA are allowed to merge," he said.

An American Airlines official accused Branson of "fear-mongering," contending that approval of the antitrust immunity would enhance, not impede, competition.

"As soon as our application is approved, it will allow for an immediate re-leveling of the playing field," since other alliances have already received antitrust immunity, said Kevin Cox, American's vice president for state and community affairs.

Cox said the company is confident U.S. regulators will approve the application by this fall. A Transportation Department spokesman said the application is still in the review process.

British Airways said in a statement that more than 40 airlines fly between European Union cities and the U.S., "yet only one has expressed outright opposition to our application - Virgin Atlantic."

"Our application is about establishing fair competition with the other global transatlantic alliances," the company said, adding that the Oneworld Alliance would give customers discounted fares, smoother connections and more frequent-flyer benefits.

-By Josh Mitchell, Dow Jones Newswires; 202-862-6637; [e-mail]