Newspaper article The Christian Science Monitor

British Air, KLM Propose Merger Carriers Seek Edge against US Rivals

Newspaper article The Christian Science Monitor

British Air, KLM Propose Merger Carriers Seek Edge against US Rivals

Article excerpt

BRITISH Airways and the Dutch airline KLM are planning to merge and have already laid their proposal before the European Commission (EC) in Brussels.

Their aim is to create a "mega-carrier" twice the size of the German airline Lufthansa and able to compete with American carriers that are expanding their operations in Europe.

A successful merger would also give British Airways a stake in the United States airline industry, as KLM already has a 20 percent stake in Northwest Airlines.

The merger would be a joint venture, creating two legally separate entities using a common fleet of aircraft and sharing staff, computers, and ticketing systems, according to a highly placed British Airways source.

BA, the dominant carrier at London's Heathrow airport, already shares Terminal 4 there with KLM.

The merged BA-KLM would set out to expand operations in Amsterdam and in Detroit, a large "hub" airport through which to make inroads into the US market. Expansion into US?

BA currently has landing rights at 19 US airports, but no access to the American hinterland. A linkup with Northwest Airlines would open up numerous Midwest and East Coast cities.

The KLM deal, BA sources say, would be modeled on the Royal Dutch Shell company, which has separate British and Dutch components united under a single holding company. There is a parallel too with Unilever, a consumer goods conglomerate with legally separate companies in Britain and the Netherlands.

A City of London banker says that if the EC approves the deal, the new airline would have a market capitalization of around 2 billion British pounds ($3.6 billion). It would be Europe's biggest operator.

News of the secret merger talks began to leak out last month when the Dutch transport union FNV said BA, currently operating at a profit, was planning a takeover of loss-making KLM. Brussels officials later confirmed that BA and KLM have made merger approaches to the EC.

BA and KLM officials have agreed to make public only minimal details, however, because they do not want to upset Leon Brittan, the EC's commissioner for competition. They are also nervous about a possible political backlash in the Netherlands. …

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