Reports: British Airways, KLM consider buyout

June 5, 2000
Web posted at: 1:48 p.m. EDT (1748 GMT)

LONDON (CNN) -- The latest marriage gossip in the airline industry concerns British Airways and Dutch carrier KLM. BA may try to buy KLM again, according to the Wall Street Journal and Britain's Sunday Business.

Both BA and KLM have declined to comment on the published reports.

In 1992, the companies held talks about a cross share-holding arrangement, but negotiations were aborted. Speculation of a BA-KLM buyout has been rekindled after a bid by United Airlines for US Airways and reports that American Airlines was discussing a merger with Northwest Airlines.

Industry analysts say BA can strengthen its position in continental Europe by taking over KLM.

"One of the reasons why they don't have a strong position in continental Europe is that it's too expensive to hub traffic through Heathrow (in London) because of the (strong) pound and because Heathrow is very congested," said Damien Horth of ABN AMRO, a Dutch financial analysis company.

Establishing a second hub at Amsterdam's Schipol Airport would allow BA to expand its business, he added.

"BA is strategically focusing on profitable traffic, and that means it's turning away a lot of people who are prepared to pay a decent fare to transfer," said Chris Avery of JP Morgan. "KLM at Amsterdam has a transfer hub, and it has the potential, and it's quite close to London.

"So, arguably, if KLM and BA were to do something together, you could flow the transfer traffic over Amsterdam and just send the profitable traffic that wants to go to London to Heathrow."

The future of alliances

But what happens to existing international alliances if full-scale mergers go through?

BA is in the oneworld alliance with American Airlines and Iberia, while KLM belongs to the Wings Alliance with United States-based Northwest. Experts say a merger would mean KLM and Northwest would most likely fold into oneworld with BA and American.

Despite the incessant rumors, full-scale airline mergers in Europe are rare and difficult, as most large carriers are still state-owned. So any potential BA-KLM deal would require painstaking negotiations to satisfy regulators, individual governments and alliance partners, analysts say.

Reuters contributed to this report.

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