Northwest, KLM get OK to merge U.S. seeks more airline competition

November 17, 1992|By New York Times News Service The Chicago Tribune contributed to this article.

In a thrust aimed at opening the skies above the United States and Europe to more international competition, the Transportation Department yesterday approved a request by Northwest Airlines and KLM Royal Dutch Airlines to merge and function as one airline and to cooperate in crucial areas such as pricing and strategy.

Although the order approving the application was preliminary, and other carriers may file objections in the next 14 days, the agency has rarely reversed itself.

If the order takes effect in 21 days, as expected, a foreign and a domestic airline, for the first time, would have the ability to function as one carrier even though legally they would remain separate companies.

Barring any changes in the accord by the Transportation Department, KLM and Northwest will be free to build what they call seamless service when fliers switched between the two carriers.

The Transportation Department said the two airlines planned to create "a joint identity by operating under the same trademark and using the same branding for aircraft exteriors and interiors, uniforms, vehicles and stationery."

Both carriers would see cost savings from combining ticketing offices and having a single sales force.

The approval is part of an effort led by Transportation Secretary Andrew H. Card Jr. to put pressure on other European countries to reach bilateral agreements with the United States under which both nations would take down their barriers to aviation competition.

The Netherlands and the United States concluded a liberal agreement last month under which airlines from each nation may fly where they want in either country with no limits on frequency or capacity.

The carrot that the Transportation Department wants to use is that adoption of liberal policies by other countries would sharply increase the chances that the United States would approve such deals as the proposed combination of British Airways and USAir, the largest carrier at Baltimore-Washington International Airport.

U.S. negotiators are holding talks with British officials about changing restrictions in both countries, though it is unknown how such efforts will be viewed in Washington once President-elect Bill Clinton takes office in January.

During his campaign, Mr. Clinton said other countries would have to liberalize their aviation agreements before he would approve combinations of domestic and international carriers.

Northwest was one of the carriers most affected by the Bush administration's liberal attitude toward buyouts. A buyout group led by Alfred Checchi took over Northwest in 1989 in a transaction that loaded it with debt.

Northwest, now struggling for relief from its heavy debt payments, is seeking cash and concessions from its unions to save on operating costs. The carrier tightened its belt a couple of notches yesterday, announcing it planned to cut 350 management jobs and 215 union positions and, in an effort to raise money quickly, was seeking a buyer for its nine gates at O'Hare International Airport.

The approval of the KLM deal is expected to improve Northwest's chances of getting more money from the Dutch airline.

Under yesterday's order, the two carriers would be given immunity from antitrust suits by competitors when they set joint fares, cooperate on the number of passengers they fly and determine together how many tickets to sell at a discount.

Legally the two would still be separate entities, as required by U.S. law, which does not allow a foreign carrier to own more than 25 percent of the voting stock of an American carrier.

KLM, which had $400 million invested in Northwest when the 1989 buyout occurred, already has 10 percent of the voting stock and holds a substantial equity stake.

KLM and Northwest want to join forces, in part, because they are among the smaller carriers in terms of trans-Atlantic service at a time when European competitors like British Airways are becoming stronger and big U.S. airlines like American, United and Delta have been expanding into Europe in force.

KLM accounts for 4.1 percent of the seats offered between the United States and Europe. But KLM lacks a significant domestic system to feed travelers to its flights, although it uses its international network to bring foreign passengers into its system.

Among the airlines that have filed objections to the proposal are Delta and United.

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