Air France-KLM, Delta tie-up to reap $12B annually

Updated on May 20, 2009 06:56 PM IST

Delta Air Lines Inc, Air France and KLM signed a deal Wednesday to combine two separate joint venture agreements into one to create a more integrated trans-Atlantic powerhouse that they said will generate $12 billion in annual revenue.

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AP | ByHarry R Weber, Atlanta

Delta Air Lines Inc, Air France and KLM signed a deal Wednesday to combine two separate joint venture agreements into one to create a more integrated trans-Atlantic powerhouse that they said will generate $12 billion in annual revenue. The airlines said they would share costs and revenues, as well as coordinate branding at airports and global advertising. Air France-KLM Group and Delta also will share governance of the joint venture. An executive committee consisting of the three CEOs and a management committee comprising representatives from the three carriers will work together on strategy.

The joint venture represents approximately 25 percent of total trans-Atlantic capacity.

The cooperation agreement between Europe's largest airline and the world's largest airline operator will mean the carriers will operate more than 200 daily flights and offer about 50,000 seats per day.

The joint venture covers all the airlines' flights between North America and Europe, between Amsterdam and India, and between North America and Tahiti, the companies said.

The joint venture will not lead to the creation of a subsidiary, the airlines said at a news conference in Paris that was broadcast on the Internet.

No new routes were announced beyond what the two previous agreements provided for separately.

Delta chief executive Richard Anderson called the joint venture agreement "unprecedented."

Anderson said there would be seamless booking, single contracts of carriage, coordination through sales and distribution, and more access to frequent flier upgrades and other redemption opportunities.

KLM signed a joint venture agreement with Northwest Airlines in 1997, while Air France and Delta signed a joint venture agreement in 2007. Following Atlanta-based Delta's acquisition of Northwest in October 2008, the carriers decided to work on forming a single joint venture.

Alliances between US and foreign carriers are not new. They allow the carriers to offer more options to passengers, while allowing the carriers to share revenues and costs. There's a pending bid by American Airlines and British Airways to cooperate on trans-Atlantic flights without fear of breaking antitrust laws. Regulators are looking at the issue. American and BA have been thwarted twice before in seeking closer ties, but their prospects appear brighter this time because of changes in the airline industry over the past several years.

American and its partners in an alliance called oneworld argue that they should get antitrust immunity because two competing alliances already have it _ Star (Lufthansa, United, and beginning this fall, Continental) and SkyTeam (Delta, Air France-KLM). American also notes that the U.S. and Europe have signed an open-skies treaty, increasing competition at Heathrow, since its last failed effort to work more closely with BA.

The Delta-Air France-KLM joint venture is structured around six main hubs: Amsterdam, Atlanta, Detroit, Minneapolis, New York-JFK and Paris-CDG, together with Cincinnati; Lyon, France; Memphis, Tenn., and Salt Lake City.

The joint venture has no predefined end date, but can be canceled with a three-year notice after an initial 10-year term, the companies said.

Air France-KLM shares rose as high as 13 percent in early trading on the Paris stock exchange Wednesday after annual earnings results late Tuesday showed progress on cost-cutting. They showed that lower staff costs and marketing expenses helped it achieve a smaller-than-expected operating loss.

The airline also announced plans to cut its work force and reduce its investment plans.

Air France and KLM combined in 2004. But unlike Delta's acquisition of Northwest, the French and Dutch carriers kept separate centers of operations and chief executives. The Air France-KLM deal called for the two carriers to theoretically remain separate, but both would be wholly owned by the Air France-KLM holding company. The new Delta is based in Atlanta, the Northwest name is being phased out and Anderson is chief of the combined carrier. Delta is seeking a single operating certificate from the Federal Aviation Administration.

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