British Airways is in talks with the UK Office of Fair Trading to reduce the £121.5 million fine the OFT imposed on the carrier in 2007 after finding it guilty of colluding on fares with Virgin Atlantic.

BA is expected to pay a reduced penalty after withholding payment despite admitting the collusion at the time. The US Department of Justice followed the OFT by imposing a $300 million (£148 million penalty) in August 2007.

The airline admitted liaising with Virgin Atlantic in setting fuel surcharges on long-haul fares between 2004 and 2006. The charges arose after Virgin Atlantic contacted the OFT. Virgin escaped a fine in return for exposing the collusion.

BA subsequently set aside a further £350 million to cover legal costs and compensation to passengers.

However, a criminal prosecution over price-fixing against one serving and three former BA executives collapsed in May 2010, leading BA to question the size of the fine.

Willie Walsh, chief executive of BA parent company International Airlines Group, said last year: “Given the way the criminal trial collapsed, we don’t believe there are any grounds for that level of fine.”

The OFT challenged BA to pay the outstanding amount in November. It is now expected the carrier could pay about half the original fine. Nether the OFT nor BA would comment.