Delta lines up fortunes: New venture with Air France opens door to Heathrow

Delta Air Lines and Air France-KLM Group plan to announce a joint venture today that will give the Atlanta carrier access to London's Heathrow Airport and boost flight options for customers on both sides of the Atlantic.

The deal, which is similar to an alliance Northwest Airlines and Dutch carrier KLM forged in the 1990s, would allow Delta and Air France to share revenues, profits and customers from dozens of trans-Atlantic routes. Those routes are expected to account for billions of dollars in annual revenues.

The join venture, to be detailed at a news conference in Paris, would help break the exclusive hold that British Airways, American Airlines, United Airlines and Virgin Atlantic Airways have on U.S. flights to Heathrow, Europe's busiest airport.

The partnership solves one sticky point in particular for Delta, which didn't own any of the so-called slots that an airline must hold to operate flights at Heathrow. The highly coveted landing and takeoff rights cost about $100 million per pair, according to Delta. Air France is supplying four pairs of Heathrow slots to the joint venture.

However, Delta Chief Executive Richard Anderson said access to the key business airport is a "small part" of the benefits Delta hopes to gain from the joint venture, which will go into effect in April after a recent air services treaty between the United States and the European Union takes effect.

More importantly, he said, the joint venture will allow Delta and Air France to better take advantage of an earlier decision by federal regulators that granted antitrust immunity to the two carriers. That immunity allows them to coordinate schedules, marketing and ticket pricing, and share revenues and profits.

The two airlines are already part of the SkyTeam Alliance, which lets passengers accrue frequent-flier miles from the various members of the group.

However, the alliance includes Northwest and several other carriers that do not have the antitrust immunity.

"It's a very important turning point," Anderson said in an interview. "You have the ability to operate the largest network across the Atlantic."

In its first phase, the airlines said, the joint venture will consist of a daily flight between Heathrow and Delta's Atlanta hub, plus three other flights from New York and Los Angeles to the London airport, plus all trans-Atlantic flights between Delta's and Air France's hubs. The 19 daily flights will generate about $1.5 billion in annual revenues, according to the airlines.

By 2010, the airlines plan to expand the joint venture to cover all of the carriers' trans-Atlantic routes between Europe and North America, as well as Air France's flights between Los Angeles and Tahiti.

The carriers estimate that those routes will eventually generate $8 billion in revenues annually.

"We think that there's at least $150 million" in pretax profits for Delta to earn each year from the agreement, said Delta Executive Vice President Glen Hauenstein.

"This is a huge win for Delta."

Some details of the partnership, such as how large a stake Delta will own and how much of its profits the carrier can claim, haven't yet been determined, the executives said.

Anderson said the agreement does not presage plans for a merger with Air France. The Delta CEO indicated Tuesday that the carrier may eventually consider buying another carrier.

But he ruled out an outright merger with Air France, noting that U.S. law limits foreign ownership of U.S. carriers to 25 percent, and that antitrust immunity grants most of the benefits of a merger anyway.

"This is purely about taking advantage of the antitrust laws of the U.S.," said Anderson.


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