British Airways Plc and KLM confirmed yesterday they were in talks aimed at a merger, opening the way to a big shakeup in a consolidation-hungry air industry.

"KLM Royal Dutch Airlines and British Airways...have agreed to conduct talks on a possible combination of their businesses," said a statement from Europe's first and fourth-ranked carriers.

But the would-be partners, who tried unsuccessfully to merge eight years ago, warned that the discussions were preliminary and there was "no assurance" they would result in any deal.

"It could be a good few years while the regulators decide whether to allow it or not," said analyst Ian Wild at SG Securities in London. "It depends how determined BA is to achieve a deal and how much they are prepared to give up."

Analysts said a tie-up could boost shareholder value by more than a billion euros through cost savings, but could take years to implement fully as the parties grappled with international air treaties, competition issues and political interference.

German carrier Lufthansa AG was sanguine, saying a BA/KLM merger would boost competition and would give it no reason to change its strategy on European partnerships.

The path to a full merger is strewn with hurdles, not least the fundamental issue of how it would affect the industry's network of bilateral government treaties which determine where each nation's airlines can fly.

But Swissair may already be blazing a trail for BA and KLM through its planned takeover of Belgium's Sabena.