Air France and Dutch carrier KLM announced today that they have reached a merger agreement which will create Europe`s largest airline.
In a joint statement, the two companies also said that Italian flag carrier Alitalia is to start negotiations to join the new group.
The complex deal is, in effect, a takeover by Air France of its smaller Dutch rival for which the French carrier will pay EUR784 million (USD$900 million). The two sides said that they hoped to sign a final agreement within the next few weeks.
The new company will become the world`s third largest airline, after US carriers American Airlines and Delta Airlines. It will also expand the SkyTeam airline alliance to make it the world`s second largest.
More significantly, the merger points the way to consolidation of the European airline industry, thought by many aviation experts to be inevitable after the financial problems encountered by carriers since 2001.
That was echoed in today`s statement by the chief executives of both companies. Air France`s Jean Cyril Spinetta said: “We have always been convinced of the necessity of consolidation in the airline industry. Today, we announce a combination with KLM that will create the first European airline group, which is a milestone in our industry.”
For KLM, who have been seeking a partner for a number of years, President and CEO Leo Van Wijk, said: “KLM has been pointing out the need for consolidation in light of the challenges facing our industry and we have not made it a secret we were looking for a strong European partner. Through this innovative partnership with Air France and our subsequent expected participation in the SkyTeam alliance, we are confident that we have secured a sustainable future for our company.”
Under the terms of the deal the French government will dilute its 54 per cent holding in Air France to 44 per cent of the combined company.
The combined annual revenues of Air France and KLM are EUR 19.2 billion in aggregate. They jointly serve 226 destinations worldwide, operate a fleet of asround 540 aircraft and employ approximately 106,000 people