Air France KLM may invest €750 million in US deal

Posted on February 27, 2008 by Matthieu Desiderio

Air France-KLM announced it would be ready to invest up to €750 million in the newly formed group if the merger deal between Delta Airlines and Northwest Airlines is concluded. The merger would create the biggest US airline and Air France KLM group is totally favourable with this deal, that would offer the French-Dutch airline a great opportunity to develop its offer on the US market.

Full support from Air France-KLM to become the #1 airline

Signed in October 2007, the joint venture agreement between Air France and Delta will be effective when Open Skies agreement is enacted in April 2008. This deal will allow Air France and Delta to jointly operate flights between Europe and the United States and share the revenues equally. By 2010, this alliance will be extended to all Air France-KLM and all Delta (eventually Delta-Northwest) routes. It will then create the leading airline across North Atlantic, with 30% market shares, $12 billion turnover, ahead of the current leader British Airways. Also in October 2007, Air France-KLM already proposed to create a four-company joint venture to operate transatlantic flights, by joining both Air France-Delta and KLM-Nothwest alliances.

If these joint venture deals are concluded, it will offer the airlines greater possibilities than usual commercial alliances like OneWorld (British Airways and American Airlines) or Star Alliance (United Airlines and Lufthansa). Sharing costs and profits allows airlines to propose better schedules, more frequent flights (even out of peak hours, when flights are not profitable) to their customers: this model already works between Air France and KLM which market share on international flights have been growing since their joint venture.

It is easy then to understand why Air France-KLM supports the merger between Delta and Northwest. Investing in the newly company will also ensure Air France-KLM not to lose Delta-Northwest in favor of other competitors. However, what company leaders wishes is not necessarily what Delta and Northwest employees unions and United States Administration will agree with…

Opposition against merger…

Even though American press seems pretty sure that the deal will be concluded, there is some opposition against this merger, among airlines’ employees. As said in Reuters article (see references below), the “merger talks may fail on the inability of pilots to agree on how to combine their ranks.” Also “the labor union representing baggage handlers and customer service workers at Northwest spoke out forcefully against any deal, saying the combination was bad for workers and service.”

“There’s some opposition against a possible merger between Northwest and Delta Airlines. The International Association of Machinists say airline mergers hurt workers and passengers. The union represents baggage handlers and ticket agents at Northwest, United Airlines and Alaska Airlines. Pilot unions at Northwest and Delta have been in talks to work out a possible merger. Northwest is Michigan’s largest passenger air carrier.”

Apparently, there is still a long way to go before Delta and Northwest form a single company. We will not miss this event and follow-up with the news and event that could create the biggest airline worldwide.

References

Article: 750 millions d’euros pour une part du ciel US, Le Figaro, Feb. 25, 2008: here
Article: Air France-KLM prêt à investir 750 M EUR dans la fusion Delta/Northwest, AFP for L’Expansion, Feb. 25, 2008: here
Article: Air France-KLM investirait 750 millions de dollars dans la fusion Delta-Northwest, Les Echos, Feb. 25, 2008: here
Article: Delta, Northwest shares fall amid merger doubts, Reuters, Feb. 25, 2008: here