The row-turned-lawsuit between Northwest Airlines and codesharing partner KLM has both carriers asking a simple question: can the world's most successful alliance survive?
The question comes as the US airline industry appears to be on the verge of a major restructuring, with or without a United Airlines-USAir merger. That proposed deal has created a momentum and what many are calling a 'new way of thinking' in the industry. This momentum may now replace alliances with mergers.
Alliances have long been risky, and recent events bear out their experimental nature. The BA-USAir alliance is showing signs of fatigue, and the KLM-Northwest saga, which has now resulted in KLM suing Northwest's major investors over board-level bylaw changes to prevent a hostile takeover, is almost in tatters. 'The alliance is under threat,' admits an insider.
But, apparently, the alliance has been under threat for a long time. Some trace this to 1992, when KLM is said to have reneged on a promised $500 million cash infusion and instead came up with $50 million when Northwest was approaching its nadir.
But others pinpoint the cause of friction to the new structure at Northwest as a publicly traded company - its IPO came in mid-1994 - and the subsequent drive for shareholder value.
Both managements are trying to contain this ruckus because of the potential damage to the alliance, which produces $150 million for KLM annually and $50 million for Northwest. 'The operational partnership is working,' says one US analyst. 'Maybe it will be enough to pull them back from the abyss.'
Mead Jennings
Source: Airline Business
