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Air France-KLM Merger Approved

Bernd Riegert (win)
February 12, 2004

Air France and Royal Dutch Airlines (KLM) will become the world's largest airline in terms of revenue after European and U.S. authorities approved the deal. The merger should be completed in the summer.

They'll each keep their shade of blue.Image: AP

A combined KLM-Air France will fly past American Airlines and United Airlines, both based in the United States, in terms of passanger traffic to rank number one in the world. It will also take off ahead of Japan Airlines System Corp. as the largest airlines group in revenue.

As a result, the European Commission in Brussels approved the deal on Wednesday only under strict conditions. The merged airlines have to give up several routes from the Netherlands to France and also transatlantic routes from Amsterdam to Atlanta and New York and from Paris to Detroit.

The two companies' chief executive officers surrendered nearly a hundred slots for takeoff and landing at European airports. "This will enable rival airlines to start a service where competition would have been eliminated or significantly reduced," the European Commission said in a statement, according to Reuters news service.

Mario Monti Pressekonferenz Alstom
European Union Commissioner for Competition Mario MontiImage: AP

Air France boss Jean-Cyril Spinetta and KLM Chairman Leo Van Wijk had lobbied hard to strike the deal. As recently as Monday they had a lengthy discussion with the EU commissioner handling mergers, Mario Monti (photo).

More weddings on the horizon

Monti is also likely to give his green light for a close partnership between Air France and Italy's major carrier, Alitalia. Monti, who has always approached the merger talks positively, regards consolidation in the European market as necessary. As a result, more weddings might follow soon, say analysts. Today the European aviation sector is still organized alongside national borders and not economic needs.

Ryan schluckt Buzz
Ryanair, left, bought Buzz airline from KLM last year.Image: AP

The big airlines, many of them partly state-owned, feel pressure from 40 low-budget-carriers that popped up like mushrooms all over the EU in recent years.

U.S. authorities also approved the deal despite concerns that KLM's already existing alliance with North-West-Airlines would harm competition with Delta Airlines. But since the U.S. carrier is bundled with Air France and North-West and Delta would be in one airline family under the Sky-Team-Alliance headed currently by Air France, the American officials agreed to the merger.

Stock markets welcomed the deal. Air France und KLM shares jumped on Tuesday. Last September, Air France announced it would buy KLM through a share exchange of €784 million ($1 billion). Both companies will retain their brands and hub airports once the merger is fully completed in the summer.