Three-way deal threat to BA

THE biggest shake-up in European airline history was looming today with a proposed merger between Air France, KLM and Alitalia gathering the support of the French and Italian governments.

Italian Prime Minister Silvio Berlusconi is pushing for his country's airline to be included in Air France's talks with Dutch carrier KLM.

An airline created from a merger of the three would eclipse British Airways and Lufthansa as Europe's largest. Speaking in New York, Berlusconi said Paris supported the tie-up.

'There is a desire on our part and that of France to end up with a merger of Alitalia, Air France and KLM, where national identities are respected,' he said. 'Our governments are working in this direction.'

Berlusconi said a three-way tie-up would 'create a group that could take on the big international companies, above all, the American ones'.

Air France and Alitalia have commercial ties and a small cross-shareholding. Air France and KLM are in alliance talks. That deal puts loss-making Alitalia at risk of being left out in the cold as Europe's airlines scramble for alliances and closer ties such as the BA-Swiss OneWorld deal.

The Italians have made several attempts to be dealt into the Air France-KLM game. Last week, Alitalia sources were reported as saying the three were considering the creation of a listed holding company as a means to tie together the partly State-owned carriers while allowing them to keep their national brands.

Union officials, however, say Air France chairman Jean-Cyril Spinetta has poured cold water over Berlusconi's ambitions, saying it was too early to include Alitalia. Many analysts say a marriage of equals is unrealistic and that Air France would swallow the two smaller airlines.

Meanwhile, Swiss International Airlines today becomes the ninth member of British Airways's OneWorld alliance.

'OneWorld has got a bit of a gap in central and eastern Europe and this was a chance to fill it with a carrier with a good reputation,' said a BA source.

BA will acquire some of its take-off and landing slots at Heathrow, providing a cash injection for the struggling Swiss carrier which is in the throes of its third financial restructuring in a year. There will also be a code-share agreement on routes between London and major Swiss airports such as Zurich and Geneva.

The deal with OneWorld came after Swiss rejected a chance to join Lufthansa's rival alliance, Star. The OneWorld option was thought more likely to guarantee Swiss an independent future.

The Lufthansa deal would have involved the German carrier taking a stake in Swiss with a direct role in its operations, while BA had no interest in a slice of its new partner.

Stormy skies ahead for top trio
ALITALIA'S attempts to gatecrash the Air France and KLM tie-up is just the latest manoeuvring which many aviation analysts believe will see three global groups dominate the industry in years to come, writes Robert Lea.

In Europe, they will be centred around the three great flag carriers of the Continent - British Airways, Lufthansa and Air France - which in turn have each fostered close links with major US airlines, respectively American Airlines, United Airlines and Delta.

But years of complex dismantlingof vested interests lie ahead, issues ranging from State control and anti-foreign ownership rules to restrictions on who can fly to national hub airports and restrictive local labour laws.

Air France's SkyTeam will not only have to accommodate its current Italian partner but also deal with KLM's Wings alliance partners Northwest Airlines and Continental of the US.

Such issues have previously blighted BA's strategy and, after being thwarted in its own attempted KLM deal four years, it has more closely aligned itself with its OneWorld alliance partner Iberia as it eyes the Hispanic American market.

Lufthansa's Star Alliance, partnered by bmi in the UK, is currently the largest global tieup but one which is seen increasingly as being propped up by the German airline.