British Airways and American Airlines have been dealt a bitter blow by the U.S. Department of Justice, which has ruled that their proposed tie-up would result in “competitive harm” and lead to transatlantic fares rising by as much as 15 percent.

The DoJ has recommended major concessions in return for granting the BA/AA alliance anti-trust immunity.

The verdict came in a report to the US Department of Transportation (DoT), which then makes a final decision on whether the deal can proceed.

The DoJ has highlighted services between London and New York, Boston and Chicago as those most likely to suffer a hike in fares due to lower competition.

It has proposed that the two airlines surrender slots at busy airports in these cities, including Heathrow and JFK, in order to win antitrust approval.

BA brushed off the report, saying that the issues raised by the DoJ were very similar to those it filed for the United Airlines and Continental tie-up for the Star alliance, which the DoT ignored. It said that the DoT should likewise reject the report.

BA said in a statement: “It’s important to note that the issues raised today by the DOJ are virtually identical to the DOJ’s filing in the Continental/United Star alliance case, which the DOT ultimately rejected. We believe the DOT should reject these arguments to the Oneworld application now as they did with the Star team alliance.

Both BA and AA also denying that the deal would lead to a rise in fares. AA added that it expected the DoT to approve the alliance anyway.

The airlines applied last year to regulators in Europe and the US for antitrust immunity, having twice previously applied and failed.

The proposed tie-up would allow the two airlines to share revenues, co-ordinate on schedules and fares without fear of legal action. It would mean BA and AA would not compete against each other on key routes, as well as bulk buy on fuel, aircraft and ground services.

Passengers could potentially benefit through using frequent-flyer miles throughout the alliance, meaning customers could redeem BA miles with AA, for example.

Rivals including Virgin Atlantic have attacked the deal.

Paul Charles, spokesman for Virgin Atlantic, said the carrier “welcomes the DoJ’s findings. We have always said that fares would rise, competitors would be squeezed off routes and consumers would be worse off.”

Meanwhile European regulators have warned that the proposed tie-up breaches competition laws.