More than one-third of British Airways' operating profits could be wiped out if Europe and the United States agree a deal in coming months to liberalise the transatlantic air market and open up Heathrow to all comers, according to new estimates circulating in the City of London.

Chris Avery, the respected aviation analyst with JP Morgan, said in a research note published last week that an open skies agreement between the two would "hurt BA's profits materially" in the first couple of years as new carriers entered Heathrow and slashed fares to the US.

The note does not put a precise figure on the financial impact but investors calculate that BA's operating profits, which reached £540m ( 787m) last year, could fall by £200m. That would translate into a £200 reduction in the fare paid by every BA business-class passenger between Heathrow and the US.

After a decade of fruitless negotiations - first on a bilateral level between the US and the UK and then on a multilateral basis between the US and Europe - there is, at last, a palpable sense that an open skies accord is near.

Under the present bilateral agreement, only four British and US carriers are allowed to fly across the Atlantic from Heathrow - BA, Virgin Atlantic, American Airlines and United Airlines.

In the past, the refusal of the UK to open its jewel in the crown to other carriers and rank protectionism on the US side have frustrated attempts to reach a deal. But in the past couple of years things have changed.

First, there is general acceptance that if the global airline industry is to be liberalised, then it has to start with a deal which sweeps away the antiquated rules governing transatlantic flights and creates a common aviation area.

Second, Brussels and not London, is in the driving seat as far as the negotiations are concerned on this side of the Atlantic, and may be prepared to sacrifice Heathrow for the wider benefits that a deal could mean for the EU as a whole.

And third, the US airline industry is badly in need of the injection of foreign investment that an open skies deal could bring. In the past five years, it has lost $30bn and shed 100,000 jobs and seen four of its flag carriers forced into Chapter 11 bankruptcy protection.

The deal the Americans put on the table in November would not remove the restrictions on foreign ownership of US airlines, which limit non-US citizens to 25% of the voting rights and 49% of the equity (the same limit which applies to EU airlines).

But it would change the definition of what constitutes "control", so that a foreign airline could determine all aspects of how a US airline operated, save in respect to safety, security and national defence.

The US says that means a foreign investor could dictate commercial strategy, fares, routes, aircraft procurement and branding but if, for instance, the fleet needed to be used for military purposes in time of war, then the decision would rest with the US partner.

It is one thing to strike a deal to open up Heathrow. But it will be quite another to implement it because the airport is already full to bursting.

In theory, KLM, for instance, could scrap its twice daily service from Eindhoven using 50-seater Fokker aircraft and hand the slots to its US alliance partner Northwest Airlines, which could use them to fly 300-seater Airbuses into Heathrow from Detroit.

But Heathrow's capacity to handle that sort of increase in passengers will be restricted until Terminal 5 opens in 2008.