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Talking about world's biggest airline.

British Airways and Dutch carrier KLM yesterday ended weeks of speculation after confirming they are to start talks on a possible merger which could create Europe's biggest airline, worth around pounds 5 billion.

The two airlines said they are to begin discussions on a 'possible combination' of their businesses.

But the move was immediately attacked by Sir Richard Branson, chairman of rival airline Virgin Atlantic, as a 'merger too far'.

News of the talks came just two weeks after BA reported its worst financial result, with losses hitting pounds 224 million.

The talks mark the first major strategic step by BA's new chief executive, Mr Rod Eddington, who took over at the helm of the company in May after his predecessor, Mr Bob Ayling, was ousted.

KLM, which has been chasing a possible merger partner since its talks with Italian carrier Alitalia collapsed last March, is understood to have initiated the discussions.

The talks could lead to an alliance or merger that would create the largest airline in Europe - twice the size of German group Lufthansa - and the world's third largest after US giants United Airlines and American Airlines.

It would also give the enlarged group a second major travel hub in Europe at Amsterdam's Schiphol airport to add to BA's strong position at London's Heathrow.

Sector specialists yesterday welcomed confirmation of the talks.

Mr Mike Powell, airlines analyst at investment bank Dresdner Kleinwort Benson, said a merged BA and KLM was a 'deal waiting to be done'.

He added: 'At the end of the day, they are both well-managed airlines, and the cultural fit between these two is probably better than for any two airlines in Europe.'

Any deal would require the approval of competition regulators and attention would focus on landing slots at Schiphol.

But Mr Powell said he did not expect a deal would require either company to sell off any parts of its business.

A merger would also boost BA's strategy on transatlantic flights, as KLM has a long-term relationship with US company Northwest Airlines.

Mr Andrew Darke, transport analyst at Williams de Broe, said: 'Within Europe the timing is right for some consolidation and the prize in terms of eliminating duplicated costs as well as putting together bigger networks to provide a better service to customers provides a lot of upside.'
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Author:Pain, Steve
Publication:The Birmingham Post (England)
Date:Jun 8, 2000
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