PARIS, 30 September 2003 — Air France and KLM entered the final countdown yesterday toward a merger-takeover creating the biggest airline in the world in terms of sales, ahead of American Airlines.
The expected deal will result in privatization of the French airline and possibly also of the Italian carrier Alitalia.
At the end of March, sales over 12 months by Air France and KLM, allowing for a loss of sales arising from an alliance, amounted to 19.7 billion euros ($22.65 billion) compared with $17.3 billion for American Airlines.
Air France employees and administrators were to attend meetings later in the day to decide on the project and an official announcement was thought possible in the evening.
The French government has made clear that its holding in Air France would fall from 54.4 percent to less than 20 percent.
The French airline, rescued in 1994 with state help of 20 billion francs (3.0 billion euros, $3.45 billion), is capitalized now at about the same amount and KLM at about 500 million euros.
In 2002 KLM made a loss of 416 million euros. Air France, which at the end of June had net debt of 2.9 billion euros, made a net profit in its 2002-2003 year of 120 million euros.
Alitalia, which has close commercial links with Air France, has been trying to secure a role in the Air France-KLM alliance. And the Italian government has sent strong signals that any such arrangement would result in the sale of up to half its holding of 62.4 percent, effectively achieving privatization which has stalled. Final approval for take-off of the Air France-KLM alliance depends on approval from the Dutch government which owns 14.1 percent of KLM and is the majority owner of Amsterdam-Schiphol airport, vital to the Dutch airline and also to the national economy.
The Dutch authorities are worried Schiphol might lose business under the new arrangements and Dutch Prime Minister Jan-Peter Balkenende said on Friday that this was a key issue.
But KLM risks losing a profitable alliance with Northwest Airlines in the United States if it cannot close a deal with Air France.
Agreement would bring KLM into the Skyteam alliance, created in June 2000 and comprising AeroMexico, Air France, Alitalia, CSA Czech Airlines, Delta Airlines and Korean Air.
Air France Chairman Jean-Cyril Spinetta has already said an agreement in principle has been reached on the creation of a holding group with two companies, with Air France and KLM retaining their names and their rights to traffic.
An analyst at Fortis bank, Maarten Bakker, quoting a source close to the matter who he described as “credible”, said at the weekend the alliance could be on the basis of an 80-85-percent holding for Air France.
But a so-called “golden share” would enable the Dutch government to retain control of landing rights at Schiphol.