The Air France - KLM Merger Story

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Case Details:

Case Code : BSTR124
Case Length : 22 Pages
Period : 1998-2004
Organization : Air France, KLM
Pub Date : 2004
Teaching Note :Not Available
Countries : Europe, France
Industry : Civil Aviation

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Air France

Air France came into existence in 1933 after five French private airlines operating on European routes merged. In its early years, Air France incurred heavy losses. The French government had to come to its rescue. During World War II, the global airline industry was hit very badly. This led Air France to substantially reduce its operations.

After World War II, the civil aviation industry in France was nationalized and Air France became a state owned company. During the mid 1960s, Air France extensively tapped international markets. In 1972, the company established its cargo division. However, it faced severe financial problems during the oil crises in 1973 and 1979. Air France established the Paris-Charles de Gaulle (CDG) Terminal one and Terminal two in 1974 and 1982 respectively. In the early 1990s, Air France acquired the two leading French airlines - Union de Transports Aeriens (UTA) and Air Inter, to fight the downturn. The company then entered into an alliance with Delta Airlines in 1999 and set up Sky team (Refer Exhibit III) in 2000.In 2003, Air France's core businesses included passenger transport, cargo transport and aircraft maintenance services...


Founded on October 07, 1919, KLM was the world's oldest airline. The company started flying planes to international destinations in 1924. During World War II, the company had to temporarily suspend its operations. After the end of the war, the operations were begun again and were never discontinued since.

The company kept improving its services and launched several quality programs to face competition. KLM entered into an important alliance with Northwest Airlines to tap the US market. KLM faced tough competition from low cost airlines during the late 1990s, with the company's margins coming under pressure.

Its financial problems were aggravated in the early years of the new millennium. Following the September 11 attacks, the demand for airline travel decreased drastically. Since KLM was badly debt-ridden and had large fixed costs, the recession in the aviation industry hit the company hard. In the year 2002-03, KLM had four core aspects to its business...

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