Analysts are predicting a rash of mergers and acquisitions in the airline industry as the major players begin to jostle for the top following the "open skies" deal.

The historic agreement between the European Union and the US will liberate the highly restricted transatlantic route when it comes into force next March.

It will also open up the possibility of consolidation among Europe's airlines, a risky business under current rules where tie-ups between rival EU groups can lead to valuable US landing rights being lost.

Already Spanish airline Iberia is considering a £2.3 billion private equity bid while similar potential takeovers are circling the skies.

Crawley-based Virgin Atlantic and British Airways have been linked to lowcost airline BMI while Italy's Alitalia is being eyed by groups including Russia's largest carrier OAO Aeroflot and Italian bank UniCredit.

Virgin is one of only four carriers currently allowed to fly transatlantic routes from Heathrow alongside BA, United Airlines and American Airlines but will certainly face open skies competition.

BMI in particular is seen as the biggest competitive threat because it is already the second largest carrier behind BA at Heathrow.

Open skies will transform the world's airline business, which is tied up in a maze of bilateral and multilateral agreements.

The agreement is the third of its kind to be signed in the past 60 years, with the Chicago Convention just after the Second World War laying the foundations for civil aviation.

The 1993 creation of the Single European Market led to the deregulation of air traffic in the European Union, which in turn saw the creation of low-cost or so-called no-frills carriers.

The latest agreement promises to be a further milestone.

Open skies deals already exist between the US and many countries in Europe, including France and Germany, but there are 11 EU countries that do not have this privilege, with Britain, Spain and Ireland among them.

However the predicted mass consolidation in the sector could be hampered by the cost involved in buying an airline, although private equity firms can provide a useful source of capital.

Many airlines seem to be opting for the more immediate and less complex option of simply adding new routes.

Virgin Atlantic is "actively looking"

at expanding its Europe to US offering, considering launching flights from key hubs such as Paris, Frankfurt, Amsterdam, and Madrid to New York within two years.

There is also likely to be competition from business-only transatlantic airlines such as Silverjet which will be able to extend its existing services, plus the emergence of low-cost routes to the States.

This week Ryanair boss Michael O'Leary said he wanted to start a low cost transatlantic airline after the "open skies" agreement with fares starting as low as £7.

Meanwhile, privately owned Canadian carrier Zoom is planning a low-cost transatlantic service from £129.