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Thursday, 13 July, 2000, 15:15 GMT 16:15 UK
Airlines aim for merger
A merger would create the world's third largest airline
A merger would create the world's third largest airline
British Airways and Dutch national airline KLM are planning to file an official full merger proposal with the European Commission's competition authorities by the end of July or early August.

"There's a draft proposal with the European Commission at the moment, and the timing is to put down the formal proposal for a full merger at the end of July or at the start of August," a KLM spokeswoman said.

She said the two had entered into an exclusive negotiation agreement, which expires in August.

The two airlines confirmed last month that they were discussing a potential tie-up following fierce speculation that the two were discussing a deal.

At the time, industry sources said the talks could result in a full merger between the two.

World's third largest airline

The merger would create the world's third largest carrier behind United Airlines and American Airlines.

KLM's comments come after the Financial Times quoted KLM chief executive Leo van Wijk as saying that the two companies were aiming for a full merger.

But he said the merger's success would hinge on the US and UK government's agreeing to an "Open Skies" policy, as both KLM and BA operate flights to the United States.

Under the present agreement, only British Airways, Virgin Atlantic, American Airlines and United Airlines to fly direct scheduled flights between Heathrow and the US, but more airlines want access to the lucrative route.

BA declined to confirm that it was planning to lodge a formal merger proposal with the European Commission.

"This round of talks are at the preliminary stage, and there is no assurance they will result in any transaction," a BA spokesman said.

"We will not be making any further comment. It is not our policy to conduct negotiations in an open forum."

Complementary

Analysts generally regard the two airlines' businesses as complementary. BA has concentrated on high-paying passengers while KLM has focused on transfer traffic from Europe.

The deal is an attractive option for BA, which has seen its profits slump as it faces increased competition on transatlantic routes, competition from budget airlines and high fuel prices. Any alliance or merger would greatly strengthen its hand, analysts say.

It would also give BA access to KLM's strategic Amsterdam hub, which has more spare capacity than London's Heathrow, where plans for a fifth terminal have been stalled over environmental objections.

Any deal would be the first strategic deal for its new Australian chief executive, Rod Eddington.

The merged company would be far larger than rivals Lufthansa and Air France and give BA a major European hub and greater access to Asia and the West coast of the United States.

BA and KLM discussed a merger several years ago, but the deal collapsed when KLM demanded a near-equal partnership.

A deal between KLM and Alitalia also came to nothing.

The merger talks follow a fresh wave of consolidation in the US airline industry.

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See also:

13 Jun 00 | Business
Pessimism on 'open skies' talks
05 Jun 00 | Business
BA 'closer' to deal with KLM
08 Jun 00 | Business
BA-KLM talks deepen
07 Jun 00 | Business
British Airways confirms KLM talks
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