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Thursday, 21 September, 2000, 18:40 GMT 19:40 UK
Airlines end merger plans
BA aircraft
Merger would have created world's third-biggest airline
British Airways and Dutch airline KLM have called off their plans for a merger.


We have always been a leading player in this market and we will continue to look for opportunities to strengthen our position in it

BA chairman
Lord Marshall
The two companies said they had been unable to resolve a number of issues.

In a joint statement, they said: "We always recognised that this would be a complex transaction.

"Although we made considerable progress, it has not been possible to resolve."

High hopes

The airlines had announced in June that they were discussing a possible merger, but they have stumbled over difficulties involving competition concerns and strict regulations over flights between the UK and US.

BA chief executive Rod Eddington tried to reassure investors, saying he would "continue to take steps to improve the performance of our company".

BA's chairman Lord Marshall said there had to be consolidation in the European airline industry: "Europe is our backyard.

"We have always been a leading player in this market and we will continue to look for opportunities to strengthen our position in it."

KLM said: "We are well-positioned in Europe, are financially strong and have a profitable and growing business."

Official proposal

The two airlines had planned to file an official merger proposal with the European Commission's competition authorities by the end of July or early August.

A draft proposal had already been filed after they entered into an exclusive negotiation agreement.

But that agreement was due to expire in August, and the problems associated with getting the deal past the competition authorities, as well as logistical problems, appear to have caused the talks to break down.

Had it gone ahead, the merger would have created the world's third-largest carrier, after United Airlines and American Airlines.

BA is fourth-biggest in terms of passenger traffic, while KLM ranks twelfth.

Open Skies

The merger's success was always going to hinge on the US and UK governments agreeing to an "Open Skies" policy, which has not been forthcoming, as both BA and KLM operate flights to the US.

Under the present strict agreement, only British Airways, Virgin Atlantic, American Airlines and United Airlines may fly direct scheduled flights between Heathrow and the US.

But more airlines want access to the lucrative route.

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

Attractive

The deal would have been 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.

It would also have given 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.

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

A possible deal between KLM and Alitalia also came to nothing.

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See also:

13 Jul 00 | Business
Airlines aim for merger
13 Jun 00 | Business
Pessimism on 'open skies' talks
08 Jun 00 | Business
BA-KLM talks deepen
07 Jun 00 | Business
British Airways confirms KLM talks
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