Air France and KLM set to reach alliance agreement

Air France and KLM are set to strike an alliance deal within two weeks, a source close to Italy's Alitalia said yesterday, reigniting…

Air France and KLM are set to strike an alliance deal within two weeks, a source close to Italy's Alitalia said yesterday, reigniting hopes of a merger to create Europe's biggest airline.

The source added that Air France and Alitalia would sign an accord to launch a single intercontinental schedule over the same period, signalling that Alitalia's recent efforts not to be left out of the partnership may have paid off.

"In a couple of weeks Air France and KLM will announce a deal and Alitalia should close an industrial alliance with Air France: on intercontinental routes Alitalia and Air France will run a single fleet," the source said.

He said the creation of a listed holding company, which would sit above the three airlines, was being studied as a means of tying together the partly state-owned carriers but allowing them to keep their national brands.

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Many analysts expect Air France to ultimately swallow up its two smaller rivals if the partnership goes ahead.

Air France and Alitalia already have commercial ties and a small cross shareholding, and all three airlines' shares have surged over the past week on expectations of an imminent merger between at least two of them.

But analysts had said Alitalia's moves to increase its involvement in any merger talks, which were initially seen between Air France and KLM, could have cooled relations.

Questions over how the airlines could maintain a national identity also slowed discussions. Should loss-making Alitalia be left out of a consolidating European sector, its troubles would mount. The airline is already set to axe 3,000 jobs as part of a do-or-die restructuring plan, the source close to the airline said.

KLM spokesman Mr Bart Koster, responding to the news of a tighter accord between Italy and France, said on Friday: "This news will directly affect our discussions with Air France."

Meanwhile, a European Commission spokeswoman said that although it had not been approached over a possible alliance between KLM and Air France, it would look favourably on any link-up.