CHRISTINA MACKENZIE / PARIS
Air France/KLM tie-up will see French airline leave state control for the first time, as KLM loses Dutch-owned status
The proposed merger between Air France and KLM could create the world's largest airline by revenue, although full integration is some years off. In a deal revealed last week, the airlines agreed that by next April, assuming regulators in Europe and the USA consent, they will invite KLM's shareholders to exchange their stock for Air France stock and warrants.
As well as creating an airline far larger in terms of sales (if not in passengers or fleet) than any other, the move will also see Air France finally pass out of government control, and KLM lose its Dutch-owned status - the first flag carrier to become foreign-controlled.
The airlines expect to sign the final agreement on 15 October, after which it will be submitted for approval to the European Commission and the US Department of Justice. A senior Air France negotiator says the EC has made it clear it will look favourably on the deal. The exchange offer will be launched in the first half of March and will close in mid-April, with the new organisation taking effect a few weeks later.
Air France will exchange each KLM share for 11 Air France shares and 10 Air France warrants, valuing KLM at €784 million ($878 million), 40% above its current market value. The move will bring the French state's share of the merged airline down to 44% from 54%. Other Air France shareholders will hold 37% of Air France-KLM, leaving KLM's current shareholders with 19%.
If the merger goes ahead, Air France will become a Paris-based holding company, known as Air France-KLM, with 100% ownership of KLM and a newly created company, which will take over the name, assets and operations of Air France. To keep KLM flying within the current system of bilateral agreements, voting rights will remain with Dutch investors for three years after the exchange is offered. A new transatlantic aviation treaty will take at least that long to negotiate (Flight International, 15-21 July).
Each airline will remain responsible for its own commercial and operational management, but a joint board will control network co-ordination and fleet strategy. Of the board of 16, seven will be French (three proposed by the French government) and three Dutch (two from KLM's board and one proposed by the Dutch government). One will be proposed by Alitalia (a minority shareholder and joint venture partner of Air France) and two by employees groups. The chairman and chief executive of Air France will become the chairman and chief executive of Air France-KLM, with KLM's chief executive becoming vice-chairman.
Leo van Wijk, chief executive of KLM, says the negotiations with Air France succeeded where earlier talks with British Airways failed because there are fewer network overlaps and because there were no obstacles concerning open-skies arrangements with US partner airlines. "British Airways could not come up with the kind of proposals that we could reach with Air France," he says.
Source: Flight International
