EU OKs Air France Buy of KLM

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BRUSSELS (Reuters) - Air France won conditional permission from the European
Commission on Wednesday to purchase Dutch carrier KLM and create the world's
biggest airline group in terms of revenue.

"The European Commission has authorized the concentration between Air France
and KLM after the companies successfully resolved concerns about reduced
competition," the EU executive said in a statement.

The Commission said its biggest concerns in what it called the "first real
merger in the European airline industry" had been on routes between Paris and
Amsterdam, and Europe and the United States.

The airlines agreed to give up 94 single take-off and landing slots -- 47
pairs -- per day.

"This will enable rival airlines to start a service where competition would
have been eliminated or significantly reduced...," said the Commission,
charged with protecting competition in the 15-nation EU bloc.

The Commission said it had had concerns with routes originating in Amsterdam
for Paris, Lyon, Marseille, Toulouse, Bordeaux, Rome, Milan, Venice and
Bologna, or from those cities to Amsterdam.

It said the slots that are being opened up will permit up to 31 new round-trip
flights per day by competitors including, including six flights between
Amsterdam and Paris.

But some airports, like Lagos, are not as congested as European airports and
are not part of the settlement.

It also had concerns on routes between Amsterdam and New York, Paris and
Detroit, Amsterdam and Atlanta, Paris and Lagos and Amsterdam and Lagos.

The deal has yet to be approved by the U.S. Justice Department.

The approval comes a decade after Air France nearly went bankrupt, staying
alive only because it won permission from the Commission to receive 20 billion
French francs -- about three billion euros -- in aid from the French
government.
That aid came at a price. The Commission's conditions were so strict that many
observers predicted that Air France become a shadow of its former self.
Instead, it moved back to prosperity.

Air France purchased its Dutch rival through a share exchange valued at 784
million euros when the deal was announced last September.

Air France aims to group the two carriers under a united holding company
called Air France-KLM.

It would move ahead of Japan Airlines System Corp as the largest airlines
group by revenues and rank third behind American Airlines and United Airlines
in passenger traffic.

The French state would own 44 percent, other Air France shareholders 37
percent and current KLM shareholders 19 percent in the enlarged company.

Air France and KLM will retain their national identities, brands and hub
airports.

KLM will remain Dutch and keep its international landing rights as the Dutch
government and other entities will hold 51 percent of its voting rights for
three years.

Italy's Alitalia also wants to join Air France-KLM but the two airlines have
said it must first be privatized and strengthen its finances.

The tie-up would bring KLM into the SkyTeam alliance, led by Air France and
Delta.

KLM's longstanding alliance with Northwest Airlines and their three-way
partnership with Continental Airlines opens the door for those U.S. carriers
to also join SkyTeam.

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