Air France and Delta Form Joint Venture

PARIS (AP) -- Air France-KLM and Delta Air Lines Inc. are forming a joint venture that will allow them to share profits and up to an estimated $8 billion in annual revenue on trans-Atlantic routes.

The move announced Wednesday follows the new Open Skies agreement on airline service between the United States and Europe.

The venture, to launch in April, will generate an estimated $1.5 billion a year in revenue in its first phase, the companies said in announcing the deal at Charles de Gaulle airport.

Delta CEO Richard Anderson said it would generate $8 billion in annual revenue when fully operating.

Such a deal will be a major challenge to competitors like British Airways as airlines jockey to benefit from the Open Skies deal, and some analysts said it could spur more trans-Atlantic combinations.

The venture will first apply to all nonstop flights between Air France's French hubs and Delta's Atlanta, New York-JFK, Cincinnati and Salt Lake City hubs, representing 19 flights and more than 4,500 seats per day.

Starting in 2010, numerous flights to all destinations between Europe, the Mediterranean and North America will be part of the joint venture, they added, as well as flights between Los Angeles and Tahiti.

Delta, the third biggest U.S. carrier, will benefit from three of Air France's landing slots at London's congested Heathrow airport. These routes will include a new Heathrow to Los Angeles route operated by Air France, two Heathrow-JFK flights operated by Delta and a Heathrow-Atlanta flight operated by Delta.

In addition, Delta will operate three new nonstop trans-Atlantic routes: Paris-Orly to JFK, Lyon-JFK and Paris-Charles de Gaulle to Salt Lake City.

Anderson noted revenue estimates were preliminary but said the company was optimistic because it was able "to take its significant network assets and the significant distribution that Air France enjoys as one of the greatest airline brands in the world and couple it with a massive distribution system, a massive frequent flyer program and an extended network of Delta."

"You're actually connecting two global networks to create the world's largest global network," Andersen said.

Jean-Cyril Spinetta, chairman and chief executive of the Air France-KLM Group, said, "We are hoping for several tens of millions of additional profitability" from the venture.

Air France and KLM combined three years ago, but are still being operated separately so as to retain landing slot privileges, notably at Heathrow where availability is extremely tight.

British Airways PLC (OOTC:BAIRY) has twice unsuccessfully attempted to combine with AMR Corp.'s (NYSE:AAR) (NYSE:AMR) American Airlines on trans-Atlantic routes.

Collins Stewart analysts said the deal is likely to be a catalyst for wider combinations, including BA and American and Germany's Deutsche Lufthansa AG, UAL Corp.'s (NASDAQ:UAUA) United Airlines of the U.S. and Britain-based BMI.

Air France-KLM shares rose 0.9 percent to 26.80 euros ($37.92) in Paris.

Spinetta also said Air France-KLM expects to start discussions with Alitalia SpA in the coming weeks. The airline is one of the six investors that the financially ailing Italian carrier has identified as possible buyers.

He also said Air France-KLM is still studying a possible alliance with Spanish airline Iberia Lineas Aereas de Espana SA. Its board is to meet Oct. 25 to discuss partnerships.