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Should BA, And KLM Merge?

Sun Jun 10, 2001 11:15 am

There were some things in the news about British Airways trying to merge with the Dutch Airline KLM,
personally i dont agree with that, because the alliance between the Northwest and the KLM is one of the best alliances in the world. What are your opinions?
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RE: Should BA, And KLM Merge?

Sun Jun 10, 2001 4:44 pm

Check this link: It looks by reading this article that problems that prevented a transaction in the past may now be worked out possibly allowing the airlines to combine. I am curious as to what will happen to NW and its alliance if this will happen. The article also states at the end that KLM will lose its open skies rights with the US if it comes under British control so I'm also wondering if it's worth for KL to give up these rights.
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RE: Should BA, And KLM Merge?

Sun Jun 10, 2001 6:27 pm

why don,t start first with working together build a alliance world wide.
with AA and NORTHWEST in the usa
BA and KLM,and IBERIA, in europe
thats stronger and bigger then STAR.


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RE: Should BA, And KLM Merge?

Mon Jun 11, 2001 11:00 pm

I have been reading all these articles about the BA/KLM merger. I think BA finally realizes that there must soon be openskies between the US and UK. However BA can not continue to expand like they want and have openskies with the US. So, my theory is that BA is looking to AMS for the potential to expand the connecting traffic. This will open up slots etc. at LHR for openskies. With openskies with the US, KLM will not lose their openskies with the US if it should fall under British control.Just my theory.
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RE: Should BA, And KLM Merge?

Mon Jun 11, 2001 11:08 pm

If push comes to shove (anti-trust wise), who is more important to BA: AA or KL?
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RE: Should BA, And KLM Merge?

Mon Jun 11, 2001 11:20 pm

Open skys between England and the US???? I think the Bermuda agreement will make sure that never happens. And as for NW/AA???? You think after all the debates over the UA/US merger especially from the state of Minnesota (NW!!!) that they will permit any type of agreement between two of the largest airlines (one of which just acquired another airline).

Then you have the regulatory bodies of the EU who shot the deal down in September, and is anticipated to only approve the current deal if further mergers are allowed to go on in the US market. KL would stand to lose a lot if they lost open sky rights with America.

It is clear that BA/AA want a full revenue sharing partnership (prohibited by Bermuda), but throwing KL/NW into the mess will only complicate matters.

This will go the same route as the United US Airways merger unless drastic changes are made by Bush (US) and Blaire (sp?)(England) to finally open up the skies. You can also bet that BA will lose a lot of slots at Heathrow in exchange for it.

Anyway, we at Schiphol fail to see any way that this deal will benefit KL. But if we gain some flights by AA/BA we can't complain.

Anyone want to talk about the Schengen agreement???  Smile/happy/getting dizzy
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RE: Should BA, And KLM Merge?

Tue Jun 12, 2001 12:48 am

Nuair, you're probably right about the fact that the UK will never get an open skies policy with the USA (because this is bad for BA) and thus BA can never really get an alliance with AA. However, don't you think that maybe BA is searching for alternative options for the BA/AA alliance. By this I mean, why shouldn't BA trow out AA and instead opt for CO or NW (or both)? This solves BA's anti trust problems.

My opinion is that BA is seriously thinking about a possible BA/CO/NW alliance and for this to happen they do need KLM as a breakup between NW and KL would mean that NW would have to pay a large fine to KLM.

Laurens Janssen
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RE: Should BA, And KLM Merge?

Tue Jun 12, 2001 1:11 am

Any BA tieup with any US carrier and anti-trust to go with it, will require an openskies between the US and UK. For years that has been the official US policy. To change the requirement now would enable other countires that have openskies with the US to cancel the agreement and still maintain antitrust I stil the respective US carrier. I still think that at some point in time common sense will set in and there will be openskies between the US and UK. The overall economic growth opportunities etc will be taken into consideration over the arrogant mentality of BA. When that happens BA will have found some other country in Europe to give them the room to expand which they cant do at LHR. At this point I am not sure where it will be, but feel sure it will happen. Stay tuned.
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RE: Should BA, And KLM Merge?

Tue Jun 12, 2001 1:35 am

Personally, I think we will have to wait a long time before KLM and BA merge. BA it would seems is more interested with pursuing a deeper partnership with OneWorld partner, AA.
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RE: Should BA, And KLM Merge?

Tue Jun 12, 2001 1:42 am

KLM wants a European partner badly, because of NW (they seem to have told them in no subtle terms to get one or forget further cooperation).
The problem is that KLM does not want to be junior partner, and BA is a lot bigger which makes an equal partnership unlikely. This is what caused the breakdowns earlier. Same with Alitalia, more or less. KLM wants to in effect take over, when the prospective partner is several times their size.
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RE: 767-322ETOPS

Tue Jun 12, 2001 1:58 am

I would think that AA & BA to stay the way they are, and they more important to each other since American never had service to AMSTERDAM likes other AA european destinations...

AA has alliance with Swissair because AA flies to Zurich, Sabena to Brussels, Lufthansa to Frankfurt, JAL to Tokyo Narita.... Who else..? South American carriers Grupo Taca, and others...

No Amsterdam because AA didnt get KLM into alliance group.... Why is that...?? , I dont know....

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RE: Should BA, And KLM Merge?

Tue Jun 12, 2001 4:59 am

Nuair: your right in saying it is unlikey that britain will have an 'open skies' policy yet i think this time the KLM/BA deal can go ahead, although talk of a mega alliance with a merged AA/Northwest is unlikey since AA is still busy with the TWA merger.

KLM AND BA complete each other in a number of ways. KLm is concerned about expanding it route network in europe, BA is looking to focus on the higher-end of customer which bring bigger yields.

BA and KLM both own low-cost airlines, this would create competition problems and Ryanair/easyjet would have a hissy fit and the prospect of GO and Buzz being merged. However, GO is to be sold, this decreases easyjet/ryanair competition concerns and Ba can still have a low-cost airline to fight them, but being under klm control means it is seen as less threaterning...

BA and KLM also own uk airlines. BA is currently intergrating Brymon airways, a former franchise, with British Regional which was recently bought along with Manx airlines. It is moving away from uk franchise partners and by intergrating them BA will be provided with a cohesive domestic operation.

KLM also owns klumUK, this ownership would be used as a weapon to fight the BA/KLM deal, let a study of KLMuk shows that this airline isnt really a uk airline. It doesnt fly to other parts of the uk, unlike the former airuk, which it bought. In fact it mainly flies to amsterdam and can hardly be described as a new airuk, in fact a shadow of its former self. KLMuk may have to be sold off as part of the deal though, to keep the EU happy, it could then be developed as a rival to Ba in the uk by being sold to another airline, this way competition concerns are further decreased.

so far GO and klmuk look casualties in this deal, if it went ahead.If they were sold to rival european airlines then this would lessen the concern.

next landing slots, the old chesnut. The fact is that ba is currently downscaling operations at Gatwick as much as possible and is therefore decreasing in size and landing slots. Heathrow is also being developed as a major star alliance hub, therefore BA can easily point that it should be allowed to develop, cant have one rule for star and another for BA.

Amsterdam airport would rightly be a second hub for BA/KLM and would of course raise issues, let KLM is already the domiant force at amsterdam and it happens to own it. Just how may hubs does BA have at amsterdam?Im sure that a ba/klm link-up isnt going to force every airline out of the airport.

This is not to suggest that a BA/KLM deal would be plain sailing, it is to simply show that problems can be over run when people put their minds to it.

BA/KLM would have to of course make concessions with regard to landing slots. I think a complete pull out of gatwick would be in order, if not already occuring as well as a decrease in flights to heathrow. Perhaps Ba klm would look at having a small base at standstead. klm already fly there and what with GO to be sold, BA may like to start a small operation there, especially since lufthansa fly there. This is of course, speculation and may be unlikely since Ba has said it wishes to concerntrate on heathrow, though a merger with another european airline would see Ba having to make some concessions to other airlines, me thinks AF and lufthansa as well as iberia and aer lingus would eb the main winners since lufthansa and af are the major rivals and iberia and aer lingus are one world partners. i also think concessions to BMI may have to be in order.

next the alliance problem. KLM of course is strongly linked to Northwest while BA is linked to american., though the relationship isnt as close and complex due to eu rules. KLM would join oneworld, no question about it. this would be allowed since the Star alliance contains the following:

BMI(25% owned by lufthansa)
SAS ( with braathens seeming to be joining)SAS is actually a group of airlines.
Austrian Airlines(which owns lauda air and tyrolean and happens to be 25% by lufthansa)

Oneworld has BA, aer lingus, iberia and finnair, though the capicity of aer lingus and finnair is smaller than SAS and probably austrian airlines. bmi is also expanding.

The other issue is northwest and AA. I doubt that BA/klm could have both as a partner and in order to calm the waters, bA may not go ahead in any further deal with AA and in fact it may even decrease co-opeartion down to the level of rest of one world,except of course qantas who is 25% owned by BA.

any further BA/AA deal is unlikely to to the major hurdles and BA would encounter opposition by having Northwest as its parnte, though this opposition would not be as rational as a BA/AA lin-up and most of the issues would be delat with quicker, in fact i think by chosing Northwest over AA BA/klm are decreasing the problems and issues raised, yet of course a deal between BA and any other airline is always meet with mass hysteria coupled with predictions of impending doom for the aviation industry.

BA already faces a lot of competiton, low cost airlines such as ryanair and easyjet are stealign customers, and are even taking buisness customers away. BA also has virgin and bmi as transaltanic rivals, therefore it has two major other airlines as competitor from the same country. How many european countries have this? Central europe is dominate by the twins of lufthansa and austrian who do nothing to add for competition and happen by been in the largest, most anti-competitive airline of them all.

France is dominated by AF, which runs a complete monopoly, aom.air lib and air littorial are falling apart.
spain has iberia and air europa, thats it for major airlines in spain. Portgual has tap with portugesa, both happen to be in the 'qualifier' group or what is left of it.So one can see that Britain is the most competive with regard to european airlines.

Therefore the following need to be addressed in order for BA/klm to pass through.

1) go would have to be sold, asap, its up for sale and the price may have to be reduced.
2) Concessions to lufthansa and bmi at heathrow, though of course bmi still wouldnt be able to fly to the USA from heathrow, it could though from Gatwick.
3) complete downscaling at gatwick airport
4) reduction in landing slots at heathrow and amsterdam to other airlines
5) sale of KLMuk to another european airline.
6) promise not to go further with AA co-opeartion, in fact decrease scale
7) acceptance into one world of klm and northwest
8) part sale of deutsch Ba to another airline, keep lufthansa happy
9) stake in iberia may have to be sold as well.
10) may open second, smaller british base at standsted.

if these can go ahead then klm/BA could pass though the EU and would stand more chance of being passed than ba and a non-european airline since the EU is more liekly to pass a deal with a dutch company, believe me the eu can take different lines when it needs to.

The dutch and Uk authorities are likely to ok it and a northwest/ba link would pass through the us government, so the major problem would be the EU...apart from the managerial structure...BA would have the chief exc, klm would also have a margin of independece, especially with regard to dutch operations.

KLM would also have to keep its livery, perhaps with a BA speadmark. the holding group would be BA/KLM and i think the airline would be KLMBA for dutch opeartions and BAklm for UK operations.This way both sides can be ahppy and KLM could save face, especially in holland.

so interesting times ahead, i do realise that it wouldnt be plain sailing, though with a yes we can attitude it can happen.

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RE: Should BA, And KLM Merge?

Tue Jun 12, 2001 6:57 am

Is a BA KLm merger in line with BAs prime objective of not being a coach/economy class airline? I think not.

Would it not be better to expand its premium services from other airports in Britain? Is there demand from second cities such as BHX, MAN, GLA and EDI for premium flights?
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RE: Should BA, And KLM Merge?

Tue Jun 12, 2001 6:42 pm

this could be likely....

UPDATE 1-British Airways eyes minority stake in KLM-source
6/11/01 12:23 PM
Source: Reuters

By Alexander Smith

LONDON, June 11 (Reuters) - British Airways Plc is considering taking a minority stake in smaller rival KLM Royal Dutch Airlines, with a full-blown merger viewed as a distant prospect, an industry source told Reuters on Monday.

"A minority stake could be taken. It would be a question of intent (to extend the relationship later)," the source said.

"The stake has to be pretty modest. As soon as you start to cooperate then you have got problems," the source added.

British Airways and KLM confirmed on Sunday that their chief executives had met for general talks but moved to scotch speculation that a merger was back on the agenda.

Both denied a newspaper report that they had started fresh talks on a deal to create the world's third-largest airline.

If British Airways were to take a stake in KLM it would be likely to be between five and 10 percent, although no decision has yet been made on whether it will pursue such a holding.

British Airways has already taken minority stakes in Australia's Qantas Airways Ltd and Spain's Iberia .

Airlines have often tried to cement relationships with each other through small equity stakes but such arrangements have often failed to keep the partners together.


Any share swap between British Airways and KLM could be complicated by the fact that the relative market capitalisations of the two companies would mean KLM having a far smaller holding in British Airways.

British Airways currently has a market capitalisation of some $5.5 billion compared with KLM's $900 million.

The minority stake path could also allow British Airways to have a management representative at KLM, although this could be complicated by the fact KLM's supervisory board meets infrequently, while its management board meets more often.

British Airways declined to comment when asked if it was looking at taking a stake of five to 10 percent in KLM.

"We have endless speculation about airlines we talk to. (Chief Executive) Rod Eddington has spoken to every chief executive of every major European airline in the past 12 months. We are on the record saying we are going to be at the forefront of European consolidation," a spokesman told Reuters.

Last year British Airways and KLM failed in their second attempt to achieve a merger.

The obstacles to that deal have not gone away. In particular, airlines still cannot afford to lose the nationalities that entitle them to fly internationally. If KLM ceased to be Dutch owned and controlled it could no longer exploit Dutch rights to fly to other countries outside Europe.

And KLM remains locked in a close marketing alliance with Northwest Airlines Inc, which is not part of British Airways' Oneworld grouping. Oneworld includes NorthWest's competitor American Airlines, a unit of AMR Corp..

The relationships with these two partners also make it difficult for British Airways and KLM to reach too close an accord via any share swap arrangement, the source said.

Like almost any airline combination a British Airways acquisition of KLM would also raise competition issues.

(Additional reporting by Daniel Morrissey and Bradley Perrett)

Copyright 2001, Reuters News Service

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