Air France, KLM prepare for joint take-off

PARIS, March 10 (AFP) – Air France and KLM are to head for takeoff with their alliance creating a jumbo airline on March 22 with troubled Alitalia waiting in the wings to hitch alongside.

The effective takeover of KLM by Air France, creating the biggest airline in the world by sales, will also result in Air France being privatised, a path it has been taking since being rescued controversially in 1994.

Air France chief executive Jean-Cyril Spinetta said on Wednesday that the stock market operation to acquire KLM shares would begin on March 22.

The transaction has been approved by European Union and US competition authorities and will lead to the to the privatization of Air France.

Alitalia, which itself is in serious difficulties over restructruing which would lead to its privatisation, said on September 30 that it would take part in the Air-France-KLM alliance in some way.

Alitalia has a privileged partnership with Air France and had feared being isolated, partly because Air France is a members of the SkyTeam airline alliance and KLM is joining.

KLM, seriously weakened after the September 11, 2001 attacks in the United States and by the SARS health scare in Asia and low-cost airlines, had been particularly concerned to ensure the future of Amsterdam Schiphol airport as an important regional hub and employer.

It had also been keen to see the French state’s interest in Air France fall to less than 50 percent. Alitalia also wanted French state control of the airline to end.

When Air France was rescued by the state in 1994, EU competition authorities gave their approval on condition that a process of privatisation begin.

The French government stake in Air France will shrink from 54.4 percent to 44 percent when the deal is completed. The state has said it ultimately wants to reduce its holding to 20 percent.

By numbers of passengers the combined company, Air France-KLM, will be the fourth largest carrier, behind American Airlines, Delta Airlines and United Airlines, according to the International Air Transport Association.

Air France and KLM agreed to a tie-up in October that values KLM at
EUR 784 million (USD 963 million).

The combined sales of the two companies came to around EUR 19.17 billion (USD 24.5 billion) in 2002-2003, compared to USD 17.3 billion for American Airlines.

But Wednesday’s announcement appeared not to have cheered investors, as Air France shares were down 3.23 percent in mid-day trade on the Paris Bourse at
EUR 15.58.

In Amsterdam, KLM shares fell 3.39 percent to EUR 17.65.

The alliance constitutes to an ironic conclusion to a story that began in 1994 when the French government provoked the wrath of other European carriers by injecting about 20 billion francs (EUR 3 billion, USD 3.45 billion) to save Air France, then crippled by financial problems and strikes.

One of the most vociferous complainers was KLM, which saw state intervention giving Air France an unfair advantage.

KLM reported a net loss of EUR 416 million for the 2002-2003 financial year as sales fell by 0.7 percent.

The tie-up now envisaged with a healthier Air France means that KLM will benefit indirectly from the subsidies it had so strongly criticized in the 1990s.

Air France executive general director Pierre-Henri Gourgeon has predicted that consumers will begin to experience the benefits of the acquisition starting in June.

The agreement will bring KLM in to the Skyteam alliance, created in June 2000 and grouping AeroMexico, Air France, Alitalia, CZA Czech Airlines, Delta Airlines and Korean Air.

China Air is expected to join the alliance within the next two years and talks are under way with Aeroflot of Russia, according to Air France officials.

Subject: France news