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Not a smooth take-off for airline merger.

Byline: Steve Pain

A proposed cooperation deal between Air France and KLM ran into last minute snags yesterday.

The two airlines dashed hopes that an agreement would be reached, saying that key issues still had to be resolved before the Dutch carrier could join the broader SkyTeam alliance.

Air France, which is already linked with US carrier Delta Air Lines and Italy's Alitalia in the SkyTeam grouping, has been trying for months to recruit KLM, which has its own transatlantic alliance with Northwest Airlines. Last week speculation was rife that the two companies were poised to unveil a far-reaching tie-up that could open the way to an eventual merger of Europe's second and fourth biggest carriers. But a joint statement issued yesterday suggested several issues still had to be worked out.

'Air France and KLM confirm that detailed discussions between the two companies are taking place in view of an intensive cooperation, concurrently with KLM's entry into the SkyTeam alliance,' the two firms said.

'These negotiations are in an advanced stage. However, critical points are still under discussion between the parties and further communication will follow as soon as an agreement is expected to be reached.'

Air France, KLM and Alitalia had all planned to hold board meetings yesterday - a sign to many that some sort of deal was imminent, possibly involving the state-controlled Italian carrier as well.

But sources said that that Air France had delayed its board meeting, while Alitalia had cancelled a gathering of its own board.

A spokeswoman for the French airline said management was proceeding with plans to brief its works council, but said little news was likely to come out of that meeting.

'It looks like Air France and KLM are downplaying expectations that have been inflating over the last several days,' said Maarten Bakker, analyst at Fortis Bank in Amsterdam.

Alitalia, which struck a symbolic two per cent crossshareholding deal with Air France around a year ago, has been keen to strengthen its ties with the French airline and be part of any new agreement with KLM.

The airline may ask the Italian government, which owns 62 per cent of Alitalia, to make a 20-30 per cent stake available for a possible share swap.

But KLM stressed yesterday that its talks are with Air France, playing down prospects for a simultaneous deal with Alitalia.
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Title Annotation:Business
Publication:The Birmingham Post (England)
Geographic Code:4EUIT
Date:Sep 18, 2003
Words:391
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