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US views BA/KLM merger as seeking loophole.


US aviation officials have warned British Airways (BA) and KLM Royal Dutch Airlines (KLM) that there is no loophole in aviation agreements with the USA that would allow KLM to continue to maintain its freedom in the USA if it is acquired by BA.

The US has indicated that it would regard KLM as a British carrier if a proposed merger with BA goes ahead. There are also indications that the US government would move to prevent KLM from operating under a liberal trade agreement that the USA currently has with the Netherlands, according to the Wall Street Journal. KLM would then have to operate under the US/UK agreement, which is somewhat more restrictive.

A US official has been quoted as stating that the government sees BA`s acquisition of KLM as a `back door` attempt by the British carrier to free up its operations in the USA.

BA has meanwhile acknowledged the complicated nature of the merger deal and in particular the issues with the USA, and an official has stated, `If a deal emerges, it could be structured in such a way that the regulators would approve it.`

Air service talks are ongoing between the US and UK, with both sides eager to have greater freedom within each others` markets, however the allotment of slots at London-Heathrow and Gatwick airports in the UK and a proposed alliance between BA and American Airlines are proving to be stumbling blocks. The proposed merger between BA and KLM is seen as giving US negotiators some leverage in pushing the UK to further open up its airports to US carriers.

In related news, KLM has confirmed that the two carriers will file a proposal for a full merger with the European Commission in late July or in the first week of August. A spokesperson for the carrier also confirmed that an exclusivity agreement between BA and KLM was due to expire early next month.

Meanwhile, analysts have indicated that they think that European regulators will approve the merger, but that it may be the last deal of its kind allowed in the industry as the number of larger carriers decline.

Competition lawyers are predicting however that in order to approve the deal regulators will require the two airlines to surrender slots at Amsterdam and London airports and sell off their low-cost carriers Go and Buzz, according to Reuters.

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Publication:Airline Industry Information
Date:Jul 14, 2000
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