Chris Jasper/LONDON

A merger between British Airways and Netherlands flag-carrier KLM is looking more likely, with the pair last week agreeing to extend the exclusivity period for their ongoing negotiations.

A previous period is understood to have lapsed, a development which led some to speculate that talks were going badly.

In a joint statement, the pair say that "constructive discussions have taken place and important progress has been made", adding that "a business rationale for a potential merger exists".

The new exclusivity period will run for "several weeks", during which the airlines will review external and internal aspects of what they say would be "the most complex transaction in aviation industry".

KLM has separately stated that a formal merger proposal is expected to go to the European Union at the end of next month.

The two have already submitted a "briefing paper" to the European Commission, and BA chief executive Rod Eddington and KLM counterpart Leo van Wijk have briefed competition commissioner Mario Monti (Flight International, 11-17 July, P6).

Greater concern surrounds the US reaction. Part of the deal's appeal lies in the opportunity for BA to restructure its network around a multi-hub system, focusing transfer traffic on Amsterdam Schiphol. But Washington has already warned that a BA takeover would jeopardise KLM's unrestricted access to the US - secured via a Dutch-negotiated bilateral - since those rights depend on nationality.

A system of holding companies could solve this problem, but the US could use the issue to press for a new "open skies" US-UK bilateral. This in turn could raise further questions about the wisdom of the merger.

Source: Flight International