European Airlines: Consolidation Fever?

After marrying to create Europe's biggest airline, Air France and KLM (KLM ) won't have much of a honeymoon. In a complex deal announced on Sept. 30, Air France will take over the Dutch carrier for about $900 million. The two companies predicted the linkup will yield up to $577 million in cost savings over five years and could lead to a wave of other cross-border mergers. But the deal could face close scrutiny from U.S. antitrust regulators. Air France shares plunged 11%, as investors fretted that the combined carrier would be saddled with excess capacity. Unless the company takes a tough line on efficiency, it is unlikely to heighten competitive pressure on other carriers, such as British Airways (BAB ) and Lufthansa (DLAKY ), to strengthen alliances with smaller carriers.

Edited by Rose Brady

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