Air France revels as merger end-game nears

Wed Oct 8, 2008 9:26pm EDT
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By Tim Hepher and Matthias Blamont

PARIS (Reuters) - Banks are collapsing, economic storm clouds are gathering yet the cabaret is in full swing and the joint is really jumping. The Great Depression? No, a lavish 75th birthday bash thrown by Air France in Paris on Tuesday.

Europe's largest airline, and the world's largest by revenues following its merger with Dutch KLM four years ago, put on a stylish and self-confident 1930s spectacle befitting one of the few certain survivors of a shake-out in European airlines.

Dotted with politicians and air hostesses in vintage uniforms, the party at the vast glass-domed Grand Palais exhibition hall would have cost a fortune had Air France-KLM not persuaded its suppliers to stump up the bulk of its cost.

But there could have been no clearer contrast to the global financial crisis after a week in which it was safer for investors to put money in an airline than a bank, and which in turn could speed up the end-game in airline consolidation.

After months of pressure from high oil prices, shrinking credit and now fears of recession, Europe's airline industry is increasingly polarized between the haves and have-nots among both traditional legacy carriers and low-cost airlines.

Air France-KLM, Germany's Lufthansa and British Airways are all hovering over the map of Europe, with Alitalia, Austrian Airlines and SAS in talks to be bought and France and Germany seen likely to divide most of the spoils.

"The crisis definitely will speed things up. Not everyone can be bought. Those that can't be bought may not survive," a top European airline board member told Reuters.


<p>An Alitalia plane passes an Air France plane on the tarmac of Fiumicino International Airport in Rome, September 25, 2008. REUTERS/Max Rossi</p>