LONDON (CNNfn) - The U.S. government would block a proposed merger of British Airways PLC and KLM Royal Dutch Airlines NV unless Britain and the U.S. reach an agreement to stimulate competition on the tightly controlled routes between the two countries, a published report said Thursday, depressing the U.K. company's shares.|
British Airways (BAY) was down 4 pence at 384 pence in morning trading in London, after earlier falling as much as 2.8 percent.
"The U.S. will not allow British Airways to use a merger with KLM, the Dutch flag carrier, as a back door to achieve greater access to our market," the Financial Times quoted White House official Dorothy Robyn as saying.
KLM Royal Dutch Airlines NV said earlier this month that it and British Airways plan officially to seek European Union regulators' approval for a full merger by the first week of August.
But KLM Chief Executive Leo van Wijk warned that a merger could go ahead only if the British and U.S. governments could agree later this year on a liberalized treaty on flights between the two countries. If ownership of KLM (KLM: Research, Estimates) was to pass into British hands, Washington could withdraw its right to fly to the U.S. - a point reiterated by Robyn, a special assistant to President Bill Clinton.
The Netherlands and the U.S. have an open-skies agreement that does not restrict flights between the two nations, but Britain and the U.S. have a pact dating back to 1977, which means that only two airlines from each nation may fly transatlantic routes to and from Europe's busiest airport at Heathrow, west London.
Washington and London have been in talks for some years to open up the market to more competition.
The combination of BA and KLM could form Europe's largest and the world's second-largest airline, boasting revenue of about $20 billion and some 600 aircraft.