Air France KLM Halts Czech Airlines Bid

Air France KLM on Aug. 19 pulled out of the race to buy ailing Czech Airlines, citing the poor state of the aviation industry and its belief that CSA should attempt to recover its fortunes as an independent carrier.

Although the merger of Air France and its SkyTeam partner KLM in 2004 is the largest to date in Europe, CSA represents the combined entity's second failure in a year to buy other members of the alliance. Air France KLM also lost out in its campaign to acquire Alitalia. Similarly, British Airways has stalled in its efforts to merge with Oneworld partner Iberia. In contrast, Europe's third major airline, Lufthansa, bought Swiss, bmi British Midland and Austrian Airlines, as well as a significant stake in Brussels Airlines.

"The current economic environment has significantly impacted the airline business," said a statement from Air France KLM. "Under such circumstances, Air France KLM believes that CSA might focus on developing and implementing a stand-alone recovery plan aimed at restoring its profitability." The Paris-based carrier added that it "wishes to further strengthen the existing partnership between the two groups and to continue to explore with CSA any new areas of cooperation that could be of mutual benefit to each company."

In May, the Czech government, which owns 91.5 percent of CSA, announced that it had narrowed its list of acceptable bidders for the airline to two. One was Air France KLM, and the other was a consortium of two Czech companies: Unimex and Travel Service. Unimex is one of the largest private companies in the Czech Republic, with interests in hotels and tourism as well as housing and industry. It holds a stake with Iceland Air Group in Travel Service, an aviation group that includes a small low-cost carrier plus leisure and business jet charter divisions.

The Czech government has not yet indicated how it will respond to the withdrawal of Air France KLM.

In common with most other European airlines, both CSA and Air France KLM reported losses this year. CSA lost €52 million in the first three months of 2009. Air France lost €426 million in the second quarter and has warned that it faces another fall in passenger volumes over the next few months.