13 July 2000

British Airways and KLM Royal Dutch Airlines are to go the whole hog merger-wise, according to KLM chief executive Leo Van Wijk: "We are aiming for a full merger, that is the basis for our discussions," he told the Financial Times yesterday.

The two national carriers now plan to file a proposal for full merger with European competition authorities by the first week of August, although Van Wijk warned that the deal would go ahead only if the UK and US governments can reach agreement on their often fraught negotiations for a liberalised "open skies" treaty. Such an agreement already exists between The Netherlands and the US.

Dismissing reports that a done deal would cost up to 15,000 jobs, Van Wijk conceded that it would yield eventual cost savings of over €1 billion ($950m).

Although BA would hold the balance of power in any merged operation, the matter of KLM’s holding remains the subject of tough negotiations. A report by Dresdner Kleinwort Benson due out today guesstimates that KLM will win 25% per cent of the combined group – although based on current market values, this should be only around 17%. The report also forecasts job losses at "less than 6,000".

Neither of the would-be partners has yet received an indication from Brussels as to the concessions required by the European Commission as a quid pro quo for approving the deal. However, the duo are working with EC officials to provide sufficient information to avoid an extended inquiry.

News source: Financial Times