Air France-KLM, Delta tie-up to reap $12B annually

[May 20, 2009]  PARIS (AP) -- Air France-KLM and Delta Air Lines said Wednesday their trans-Atlantic joint venture will bring estimated annual sales of $12 billion from more than 200 jointly operated flights each day -- about a quarter of all capacity on the routes.

"This strategic partnership puts us in a good position compared with other major alliances, which are extremely active on the world's leading long-haul market," Air France-KLM Chief Executive Pierre-Henri Gourgeon said as the two companies sealed their deal.

The cooperation agreement between Europe's largest airline and the world's largest airline operator will also "help us weather the current economic situation and protect our product offering," Gourgeon said.

In a statement, the companies said that together they will operate more than 200 trans-Atlantic flights and offer about 50,000 seats per day. The joint venture represents about a quarter of all trans-Atlantic capacity, the companies said.

The joint venture covers all the airlines' flights between North America and Europe, between Amsterdam and India, and between North America and Tahiti, the companies said.

On trans-Atlantic routes the companies will operate as a single business, by coordinating operations and sharing revenues and costs. The airlines will also cooperate on routes between North America and Africa, the Middle East and India, as well as on flights between Europe and several countries in Latin America, the companies said.

The joint venture has no predefined end date, but can be canceled with a three-year notice after an initial 10-year term, the companies said.

Air France-KLM shares rose as high as 13 percent in early trading on the Paris stock exchange Wednesday after the release late Tuesday of the airline's annual results showed progress on cost-cutting. They showed that lower staff costs and marketing expenses helped it achieve a smaller-than-expected operating loss -- a measure of earnings from ongoing operations -- of euro129 million ($175 million) compared with a net profit of euro1.4 billion a year earlier.

"The cost performance was better than they expected, and plainly better than the market expected," said ABN Amro analyst Andrew Lobbenberg, noting, though, that revenue performance was worse than anticipated.

The airline also announced plans to cut its workforce and reduce its investment plans by euro2.9 billion to euro1.4 billion. These measures, combined with cost savings of euro600 million, "should offset a significant proportion of the anticipated drop in revenues," the company said.

At 0830 GMT the stock was up 9.7 percent at euro11.13.

[Associated Press; By GREG KELLER]

AP writer Scott Sayare contributed to this report.

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