KLM and Air France are Talking Merger with Alitalia

One of the items on the late November meeting between French President Jacques Chirac and Italian Prime Minister Romano Prodi was a possible merger of the three airlines.

Based on financial results, the previous joining of KLM and Air France has been a great success, much of which is based on operational synergies between the two. Passenger traffic for the airlines has been healthy and in a highly competitive cargo market, the combined airlines realized an increase of 3.2% with capacity growing by 2.2% while load factors were only at 63.5%. In financial terms, for the six months to the end of September, total cargo income was € 1,453,000 in 2006, compared to € 1,358,000 in 2005, a gain of 7.0%.

Issues remain to be resolved before a merger of the three airlines could take place. For one thing, the French government owns just 18.6% of Air France while the Italian government has a 49.9% stake in Alitalia. The Italian airline has financial problems that could lead to it declaring bankruptcy as soon as January. It is also perceived that the Italian government has a tendency to interfere in the operations of its airline. One suggestion has been to privatize Alitalia in order to alleviate some, if not all, of its problems.

Alitalia already has business arrangements with the other airlines as a member of the SkyTeam Alliance that includes Aeroflot, AeroMexico, Air France KLM. Continental Airlines, CSA Czech Airlines, Delta Air Lines, Korean Air and Northwest. China Southern is currently working toward SkyTeam membership, as well.

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