I know BA would not allow Delta as a replacement at this point, but would authorise Lufthansa.
But the only two nonstop carriers in this market are BA and Delta. Lots of ways to fly SEA-LHR with a connection, of course, but this is a paid first class passenger who correctly and reasonably wants the convenience and speed of a nonstop.
because it's AA then it's AA's policies which apply
Agree, as to rebooking rules and calculation of fare difference.
I can't see AA paying for the downgrade either, that would be via USA policies here
I thought EC261 rules and obligations run with the operating carrier. So after the passenger travels -- however that may, on whatever routing that may be -- the passenger is entitled to EC261 benefits since the original travel was to be operated by a carrier bound by EC261, i.e. BA. No? This is what comes up in the first couple minutes of web search about "EC261 codeshare". Incidentally there can also be unfortunate situations (from the passenger's perspective) in the other direction, e.g. customer buys BA(AA) JFK-LHR or whatever, then AA cancels, and BA would correctly say it is not the operating carrier and is not on the hook, while AA would say it is not a European carrier and was not departing Europe, so it is also not on the hook.