Air France, KLM Accept EC Conditions On Merger

Air France and KLM Royal Dutch Airlines this afternoon expressed satisfaction with a European Commission ruling conditionally clearing the carriers' proposed cross-border merger. In accepting the decision paving the way to the formation of Europe's largest airline, the airlines agreed to a series of concessions meant to maintain competition on key routes.

Specifically, EC regulators stipulated that the carriers surrender 94 daily slots to "enable rival airlines to start a service where competition would have been eliminated or significantly reduced therefore preserving choice of carriers and competitive prices for European travelers." The slots primarily are for flights on 14 intra-European and transatlantic routes from Amsterdam and Paris.

"The European Commission's decision defines a clear legal framework for us to set up Europe's leading air transport group," said Air France chairman and CEO Jean-Cyril Spinetta and KLM president and CEO Leo van Wijk. "By giving its clearance, the Commission has shown its commitment to the consolidation of our industry, whose current, highly fragmented organization is no longer adapted to the challenges of today's world."

Air France and KLM said they would make available slots at Paris Charles de Gaulle and Amsterdam Schiphol airports "only when a new entrant is unable to obtain these slots via regular procedures." EC noted that the surrender of the 94 slots for the first time "is for unlimited duration," rather than the traditional six-year timeframe.

The two carriers also agreed to foster interline agreements with other airlines, open their frequent flyer programs and develop intermodal agreements with land transport companies. The French and Dutch governments, meanwhile, agreed to provide traffic rights to other airlines seeking to stop over in either Amsterdam or Paris as part of flight itineraries to the United States and other non-European Union countries. The governments also assured regulators they would not regulate pricing on long-haul routes on which other airlines offer connecting service in competition with Air France-KLM.

"The outcome of this case shows that the long-awaited consolidation of the European airline sector can be done in full respect of competition rules," said E.U. competition commissioner Mario Monti.