WASHINGTON -- Air France signed a deal to take over KLM in a merger
that could help reshape the airline industry.
The $920 million, all-stock deal would create the largest
airline in Europe -- if it meets with shareholder approval and
passes antitrust reviews in the U.S. and Europe.
Air France and KLM would keep their separate identities but
would code share and coordinate their scheduling, revenue
management, sales and strategy.
The airline could get even bigger: Alitalia wants to join and
signed agreements with both carriers that would enable negotiations
to begin as soon as the Italian government relinquishes control of
The deal also could be a precursor to more airline consolidation
in Europe. Within days of the Air France-KLM deal, British Airways
and Iberia were fending off rumors they were starting merger
"The airline industry is fragmented and its current competitive
structure, with national carriers for each individual country, is
an inheritance from a former era," Air France and KLM said in a
joint statement. "The need for structural changes and consolidation
in Europe is widely accepted but has not yet commenced as a
consequence of regulatory and political constraints."
That consolidation, however, might not happen quickly. Many
airlines are waiting for a U.S.-European Union pact that would
create a completely open transatlantic market, replacing U.S.
bilateral agreements with individual European countries.
The bilateral agreements discourage consolidation because the
rights apply only to carriers whose majority ownership is in one of
the signatory countries. For example, British Airways could not
acquire KLM and use the Netherlands' open-skies agreement to offer
service from Amsterdam to the U.S.
The U.S. and EU just started negotiations, which most observers
expect to take years.
With most of the airlines already in global alliances, "I can't
see anyone else doing anything [with mergers] in the short term,"
said Dominic Edridge, transport analyst for Commerzbank Securities
In a way, the Air France-KLM agreement shows why. Its complex
structure is designed to overcome barriers but could create a
The deal would create one Air France-KLM holding group for two
operating companies -- one for Air France and one for KLM, enabling
each to retain its own brand and operations.
Air France's chairman and CEO also would be chairman and CEO of
Air France-KLM; KLM's CEO would be vice chairman. A strategic
management committee at the Air France-KLM level would be
responsible for the overall group strategy.
France and other Air France shareholders would own a majority of
the Air France-KLM holding company.
For a three-year transition period, however, Air France-KLM
would own 49% of KLM voting rights in the KLM operating company;
the remaining 51% would be shared by two Dutch foundations and the
That's intended to retain KLM traffic rights to foreign
countries, including the U.S.
To contact reporter Andrew Compart, send e-mail to [email protected].