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Aviation History
2000
2000-1 - 1112.PDF
m\ BA-KLM merger talks collapse 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 floun dered 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 diat one of the fundamental difficulties was that "BA saw die deal as a takeover while KLM saw it as a merger." The two airlines' chief execu tives - BAJS Rod Eddington and KLM's Leo van Wijk - described riie breakdown saying: "We always recognised that this would be a complex transaction, involving not only commercial and economic issues, but also aeropolitical, regu latory 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 die ordi nary shares it was die Dutch aim to have 51 % of die votes on die super visory board - a scheme which apparently failed to satisfy London. KLM said it was surprised at die BA position as its believed die 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 die proposed merger. The UK airline had begun talks widi KLM's transatlantic partner Northwest about an alliance aris ing from the proposed deal with die Dutch carrier. The UK carrier will now have to mend its faltering relationship with American in die wake of the collapse of die 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 be tween the USA and UK over an Open Skies agreement. BA has lit tle to gain from an Open Skies pol icy 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 pri vatisation and problems at the alliance's new Milan Malpensa hub had become intolerable. BA and KLM previously came close to a merger in die early 1990s. Had the deal gone ahead, it would have strengthened BAs posi tion as the world's diird-largest air line and allowed it to make huge cost savings. It was no doubt attracted to die 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 die proposed merger past competition watchdogs, the two sides had offered to dispose of KLM's low cost airline Buzz and release certain routes between die 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 consolida tion in die European airline indus try. Europe is our backyard," says BA chairman Lord Marshall. "We will continue to look for opportu nities to strengthen our position." Van Wijk adds that "KLM con tinues to believe that consolidation in die European aviation industry is inevitable. We at die same time remain convinced that the future for KLM is bright." • Lufthansa goes on acquisition trail with Hawker, Eurowings buys LUFTHANSA HAS been active in the acquisition field in the last few days, with die mainte nance side of the business purchas ing Hawker Pacific and the parent company taking a 25% stake in European regional Eurowings. Lufthansa Technik (LHT) is set to become one of the world's largest landing gear repair special ist following the announcement that it is taking control of US com pany Hawker Pacific. The deal involves die purchase of an initial 40% of Hawker's stock from major shareholder Unique Investment. It will eventually be able to take 64% of the equity. Hawker Pacific, with facilities in the USA and Europe, has a 20% share in the large airliner sector, will be merged with LHT's land ing gear unit at Hamburg, which has sales of $82 million. Meanwhile, LHT's parent Luft hansa Group has boosted its domi nance in the German airline market, following its 25% acquisi- Luftbansa Cityline has added more Bombardier regional jets to its fleet tion of regional carrier Eurowings. The flag carrier will purchase part of Eurowings chairman Albrecht KnauPs 99.91% shareholding, injecting badly needed investment, particularly for fleet renewal, into the airline, which has seen its prof its and margins slump. The deal also brings Eurowings, which serves 62 destinations, into die Star Alliance fold. Separately, Eurowings has revised its co-operation agreement with Dutch flag carrier KLM offering "a shorter term and more flexible arrangement". Under the new deal, Eurowings will fly routes between Germany and Amsterdam with KLM liveried aircraft. • Lufthansa CityLine has doubled its orderbook for the Bombardier CRJ700 with die firming up of its 10 options, and is discussing a commitment for 10 more aircraft. CityLine is to receive the first of its initial batch of 70-seat CRJ700s early next year, from its original order in September 1998 for 10 aircraft plus 10 options. The new order will arrive between 2002 and 2003. Bombardier says that the German regional airline is "consid ering options for an additional 10 CRJ700s" which would take its orders to 30 aircraft. Lufthansa CityLine says the options could include some 50-seat CRJ-200s. The deal comes despite the air line's commitment for the rival Fairchild Dornier 728JET, for which it holds 60 orders and 60 options. At the time, CityLine was due to receive its 728JET in the second half of 2002, however, the programme has slipped and is not now due to enter service until mid- 2003. The additional CRJ700s will help the airline to bridge this gap and provide growth and flexibility for any further delays. • 6 FLIGHT INTERNATIONAL 26 September - 2 October 2000
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