BA in co-operation talks with KLM but rules out a merger

The chief executive of British Airways, Rod Eddington, disclosed yesterday that the carrier is in talks with KLM about closer co-operation, but BA ruled out a full-scale merger with its Dutch counterpart.

Mr Eddington is understood to have held discussions with KLM and a number of other European carriers with which BA already has links at an IATA conference in Madrid last week.

The discussions centred on commercial alliances, including code-sharing agreements that might be developed in view of the "exceptional challenges" the industry is facing in the wake of 11 September.

The Treasury is expected to announce today that it has agreed to continue providing UK carriers with insurance cover until the end of the year while they agree new arrangements with commercial insurers.

Appearing on BBC's Breakfast with Frost, Mr Eddington said: "We want and believe that European aviation has to consolidate. We are talking to KLM, [and] we are talking to other carriers ... to see if there are ways we can work together more closely."

Mr Eddington said he believed that the 15 separate carriers in Europe would come down to perhaps three.

But a BA spokesman stressed that a full-blown merger with KLM was not imminent. The two airlines ended merger talks last year after deciding the regulatory obstacles were too great.

A spokesman said: "If you are asking whether a full scale merger is back on the agenda, then the answer is no."

Mr Eddington also told the programme that he was hopeful of obtaining clearance in the US and UK for a transatlantic alliance with American Airlines by the end of the year.

British and American officials are meeting in London today for the first time since 11 September for informal "talks about talks" over an open skies deal between the two countries.

"We would certainly like to get together with American Airlines," Mr Eddington said. To do that, anti-trust immunity was needed. "We are hoping that the governments will be able to deliver that towards the end of this year."

Mr Eddington said that BA, which has already announced 7,000 job losses, might have to seek further savings. "We will survive, but we're going to have to change the way we run our business, the things we do, in order to survive. We are going to have to tighten our belts – we've begun that process already, there may well be more things we have to do."