EU, US OK Air France takeover of KLM
(Agencies)
Updated: 2004-02-12 13:44

Air France, nearly grounded in a near miss with bankruptcy a decade ago, was cleared by Brussels and Washington on Wednesday to take over Dutch KLM and create the world's highest-flying airline group by revenue.

The airlines agreed to give up take-off and landing slots on flights involving three continents, allaying European Commission competition concerns about what it called the "first real merger in the European airline industry."

Air France is spearheading an expected move toward consolidation in Europe's crowded airline sector, hoping to tap economies of scale and expand as the European Union prepares to grow from 15 to 25 nations in May.

The new Air France-KLM combination will move ahead of Japan Airlines System Corp. as the largest airlines group by revenue and rank third behind AMR Corp.'s American Airlines and UAL Corp.'s United Airlines in passenger traffic.

The new carrier will give up 94 single slots daily with each round trip accounting for four slots, two each for landing and arrival.

"This will enable rival airlines to start a service where competition would have been eliminated or significantly reduced...," the Commission said in a statement.

Air France shares rose 1.79 percent to 15.39 euros on Wednesday while KLM ended up 1.02 percent at 16.89 euros, its highest finish since May, 2002.

The chief executives of the two airlines, who sources said had to give up more slots than they wanted, took solace in the fact that they retained all of their routes.

"Neither party has been required to give up any routes or frequencies," Air France's Jean-Cyril Spinetta and KLM's Leo van Wijk said in a joint statement.

The companies will likely have to give up some frequencies -- the number of flights between airports -- to make room for the 31 new round trips envisioned by Brussels for competitors.

The airlines will give up slots on international routes between Amsterdam and New York, Paris and Detroit, Amsterdam and Atlanta, Paris and Lagos and Amsterdam and Lagos.

They will also give up slots between Amsterdam and Paris, Lyon, Marseilles, Toulouse, Bordeaux, Rome, Milan, Venice and Bologna. Some airports, like Lagos, are less congested than European airports and not part of the settlement.

The United States, which worked closely with the Commission, said after Brussels acted that it would not oppose the deal.

BRINK OF BANKRUPTCY

The approval comes a decade after Air France nearly went bankrupt, staying alive only because it won permission from the Commission to receive 20 billion French francs -- about three billion euros ($3.84 billion) -- in aid from the French government.

That aid came at a price. Commission conditions were so strict that many observers predicted Air France would become a shadow of its former self. Instead, it returned to prosperity.

Air France purchased its Dutch rival through a share exchange valued at 784 million euros ($1 billion) when the deal was announced last September. It aims to group the two carriers under a united holding company called Air France-KLM.

Italy's Alitalia wants to join Air France-KLM but the companies say they first want the Italian carrier to privatize and stem operating losses. But the Commission said on Wednesday it expects to soon give approval for a code-sharing pact between Air France and Alitalia.

The French state will own 44 percent, other Air France shareholders 37 percent and current KLM shareholders 19 percent of the enlarged company. Air France and KLM will retain their national identities, brands and hub airports.

KLM will remain Dutch and keep its international landing rights as the Dutch government and other entities will hold 51 percent of its voting rights for three years.

KLM's longstanding alliance with Northwest Airlines Corp. and their three-way partnership with Continental Airlines opens the door for those U.S. carriers to also join SkyTeam, the airline alliance headed by Air France and Delta Air Lines Inc.  

($1=.78 euro)

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