Future of airlines in doubt after failure of Alcazar plan

THE COLLAPSE of talks on the Alcazar European airline merger shook the four airlines involved yesterday, sparking concerns about their financial strength, Reuter reports.

Talks on a merger between the four airlines - KLM Royal Dutch Airlines, Scandinavian Airline System, Swissair and Austrian Airlines - were abandoned at the weekend, leaving uncertainty about the carriers' future.

Analysts said Europe's airlines might never again dream up a plan as ambitious as the Alcazar deal, but they still had to move to forge ties and cut costs before the end of the 1990s.

'It's inevitable that we will see a continued push for alliances and mergers, probably within the next six months,' James Halstead, aviation analyst at Swiss Bank in London, said.

Conditions for European airlines will become particularly tough in 1997 when big US rivals are permitted to fly freely in Europe. But time is tight for the financially weak airlines. SAS will be the most desperate ex-Alcazar partner seeking a European fortress, analysts said.

'SAS will clearly be pushing for more talks to find a European partner with a central European location,' said Guy Keckwick at Lehman Brothers in London. A link between the Scandinavian airline and KLM is regarded as one of the most promising possibilities.

Analysts said KLM needed a rights issue of between 500m and 1bn guilders to strengthen its balance sheet now that the Alcazar merger was not going through.

Austrian Airlines, the partly privatised Austrian carrier, said it would continue to seek new partnerships. Its supervisory board president, Rudolf Streicher, said the loss-making carrier could solve its problems only by expanding its co- operation agreements.

The first step will be to conduct talks with existing shareholders and co-operation partners, and intensify negotiations with Germany's Lufthansa, he said.

The idea of Swissair joining a three-way tie with Lufthansa and Austrian received only a lukewarm response from analysts.

Shares in Swissair opened yesterday at Sfr740, compared with Friday's close of Sfr760.