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4 European Air Carriers Scrap Plan for Merger : Transportation: The airlines had hoped to form a 'fortress' to compete with lower-cost flights.

November 22, 1993|From Times Wire Services

AMSTERDAM — Alcazar, the most ambitious airline merger ever attempted, was stranded on the runway Sunday when four European carriers abandoned talks after they failed to agree on which U.S. partner to take on board.

"We agreed to disagree," KLM Chairman Pieter Bouw told reporters after Austrian Airlines, KLM Royal Dutch Airline, Scandinavian Airlines System and Swissair ended nearly a year of talks on creating Europe's largest airline.

The aim of the proposed airline, code-named Alcazar after a four-towered Spanish-Moorish fort, was to establish a "European fortress" to rival low-cost U.S. and Far Eastern competitors.

The project, involving four airlines and six governments as well as a tricky choice between two U.S. partners--Northwest Airlines, which owns a large stake in KLM, and Delta Air Lines, which is partly held by Swissair--was the most complex merger attempted in aviation history.

The four mid-size European airlines, which are all in the red, said in a statement that they held fundamentally different views on a U.S. partnership, a cornerstone of the plan to create a carrier big enough to compete in a liberalized aviation market.

"Other prospective members were not prepared to participate in a partnership in which the KLM-Northwest alliance might provide the center of gravity," Northwest President John Dasburg said in Minneapolis.

The collapse of the talks left three of the four carriers seeking perhaps less ambitious partnerships to bolster their positions as Europe's skies are opened to free competition.

In the United States in the late 1970s, that process spawned fierce competition and ultimately led to a string of bankruptcies.

Only Austrian Airlines, the smallest, may have a quick alternative as it remains in talks with Deutsche Lufthansa. In Frankfurt, Lufthansa said it was interested in cooperating with Austrian Airlines but was not seeking a merger.

Bouw said the four airlines would continue to investigate ways to work together in specific areas, but for the time being they would go their separate ways.

None of the four revealed immediate plans to start separate talks with each other.

The group talks broke down after a lengthy standoff between KLM and the other three, led by Swissair. Swissair was worried about Northwest's financial strength and wanted its link with Delta to be extended to the new group.

"KLM decided that cooperation in Alcazar . . . could only be achieved if Northwest Airlines is the American partner," Bouw said. "For KLM, it was extremely important that we operate as one unit. The other three had less pressing desires."

Bouw said that KLM would seek to further strengthen its ties with Northwest.

In Zurich, Swissair director Hannes Goetz told a news conference: "We are disappointed that KLM has decided to intensify its ties with Northwest Airlines even though the Swissair position had been clear for months."

Scandinavian Airlines, which aviation analysts believe is the most vulnerable of the four carriers, said it would continue to cut costs and look for a new partner.

"We'll survive," Scandinavian Chairman Tage Andersen said in Stockholm. "We will scan the horizon for new partners, but it is too early to say anything concrete."

Aviation analysts believe prospective partners are few, particularly for KLM. But Swissair's Loepfe said it had a number of possible partners in mind.

Analysts sketching out the future European map of aviation alliances speculated mainly on the chance of a Germanic bloc, centered on Lufthansa and involving Swissair and Austrian, and a Scandinavian flank between KLM and SAS.

Corne Zandbergen of Bank Van Haften Labouchere said: "It was too difficult for all four carriers to agree, but maybe two together will find it easier to make deals."

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