Thursday, June 08, 2000
European airlines join merger mania
By Bruce Stanley
The Associated Press
LONDON — British Airways and KLM are discussing a possible merger, the airlines disclosed Wednesday, a combination that would create the world's third-largest airline and a worthy European challenger to any U.S. carriers that may emerge from the latest wave of industry consolidation.
Other European airlines — including Alitalia and Swiss-
air — could be among the next to seek partners as companies in the region try to bulk up to compete with the strongest American players, analysts said.
“Everyone will be watching to see what BA and KLM do first,” said Nick van den Brul of BNP Paribas in London. “It won't be too long before we see more movement.”
If successful, a combina tion of British Airways PLC and KLM Royal Dutch Airlines NV would be Europe's largest airline in terms of passenger traffic, according to the International Air Transport Association.
Analysts had been expecting airlines to pair off in a fresh round of mergers and acquisitions after the announcement last month that UAL Corp., the parent of No. 1 United Airlines, had agreed to buy No. 10 US Airways for $4.3 billion.
European airline consoli dation has lagged behind that of the United States, due partly to the large stakes that national governments hold in many of the region's flag carriers.
Scandinavian Airlines System, for example, is owned jointly by the governments of Sweden, Norway and Denmark — a complex ownership structure that would likely impede a possible merger with another airline.
However, intensified competition, together with the recent deregulation of European aviation, is leading some of the region's biggest airlines to consider combining with traditional rivals to ensure their long-term survival.
“The European industry is desperate for consolidation,” said Andrew Light of Salomon Smith Barney.
In April, Swissair's parent, SAirGroup, raised its stake in Sa bena to 85 percent from 49.5 percent, replacing the Belgian government as the majority shareholder in Belgium's national airline.
KLM called off a joint venture with Alitalia in late April. On Monday KLM confirmed it wanted to find a new partner within a year.
Alitalia still is seen as a leading merger candidate, despite the Italian government's reluctance to sell off some of its majority holding.
Europe's two largest airlines after BA, Lufthansa and Air France, are thought to be less likely to rush into the arms of a potential partners. Lufthansa is busy digesting smaller acquisitions already made, and Air France, though willing to talk about merging, is capable for now of faring well on its own, analysts said.
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