Air France-KLM alliance stalls on the runway

The long-mooted tie-up between Air France and KLM was put on hold yesterday after the two airlines said there were still "critical points" to iron out.

Any link-up between the two flag carriers is expected to fall well short of a full-blown merger because of the regulatory obstacles it would face. Instead they will concentrate on route and cost sharing. There is also a possibility that Air France and KLM will take small minority stakes in one another at the same time as the Dutch carrier joins the SkyTeam alliance, which is led by the French airline and Delta Air Lines of the US.

The two carriers had been expected to announce details of their alliance following board meetings yesterday. Instead they put out a holding statement saying that advanced talks on "intensive co-operation" were taking place but added: "However, critical points are still under discussion between the parties and further communication will follow as soon as an agreement is expected to be reached."

Air France has been courting KLM for a long time and Alitalia, which is also a member of the SkyTeam and has cross shareholdings with Air France, is also keen to forge closer ties with the Dutch airline.

But a takeover of KLM by Air France, which was at one stage hinted at, appears to have been ruled out for the same reason that British Airways abandoned its attempted merger with KLM.

Any non-Dutch airline taking over KLM would lose the Dutch airline's landing rights in countries outside the European Union because these are granted to carriers on the basis of their nationality.

Analysts said it would probably take the introduction of an EU-wide open skies agreement with other countries to facilitate a full merger between two European airlines.

However, British Airways said yesterday that full liberalisation of air services between Europe and the US was probably still years away.