Max Kingsley-Jones/LONDON
Efforts to consolidate the European airline industry have suffered a serious setback following the decision by British Airways and KLM to end merger talks.
Months of negotiations floundered over the inability of the two companies to agree a structure that would have given British Airways sufficient control over the Dutch airline. A BA source says that one of the fundamental difficulties was that "BA saw the deal as a takeover while KLM saw it as a merger."
The two airlines' chief executives - BA's Rod Eddington and KLM's Leo van Wijk - described the breakdown saying: "We always recognised that this would be a complex transaction, involving not only commercial and economic issues, but also aeropolitical, regulatory and other matters. Although we made much progress, it has not been possible to resolve these."
Van Wijk says that while BA would have held 100% of the ordinary shares it was the Dutch aim to have 51% of the votes on the supervisory board - a scheme which apparently failed to satisfy London. KLM said it was surprised at the BA position as its believed the structure issue had been resolved.
BA had already been warned by oneworld partner American Airlines that a merger between BA and KLM would prompt BA's expulsion from the alliance. The warning came in a submission to the European Commission's Merger Task Force (MTF), which had started initial examination of the proposed merger.
The UK airline had begun talks with KLM's transatlantic partner Northwest about an alliance arising from the proposed deal with the Dutch carrier. The UK carrier will now have to mend its faltering relationship with American in the wake of the collapse of the KLM deal. While BA has courted KLM and Northwest, Dallas-based American has been developing its relationship with Swissair.
It is unclear what implications the collapse of the talks may have on continuing negotiations between the USA and UK over an Open Skies agreement. BA has little to gain from an Open Skies policy with the USA, unless it clears the way for its long delayed approval by Washington of its American tie up.
The BA-KLM merger talks began in May, following the the Dutch carrier's decision to split from Alitalia. It complained that delays in the Italian carrier's privatisation and problems at the alliance's new Milan Malpensa hub had become intolerable. BA and KLM previously came close to a merger in the early 1990s.
Had the deal gone ahead, it would have strengthened BA's position as the world's third-largest airline and allowed it to make huge cost savings. It was no doubt attracted to the prospect of being able to use KLM's Amsterdam Schiphol hub to help ease its headache over congestion at London Heathrow and Gatwick. To get the proposed merger past competition watchdogs, the two sides had offered to dispose of KLM's low cost airline Buzz and release certain routes between the two countries.
Despite the setback, both airlines remain committed to European consolidation, although, for KLM in particular, it is difficult to see from where a new partner will emerge. "British Airways still believes there must be consolidation in the European airline industry. Europe is our backyard," says BA chairman Lord Marshall. "We will continue to look for opportunities to strengthen our position."
Van Wijk adds that "KLM continues to believe that consolidation in the European aviation industry is inevitable. We at the same time remain convinced that the future for KLM is bright ."
Source: Flight International
