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Non-Tech : AKH...the NEW Air France/KLM -- Ignore unavailable to you. Want to Upgrade?

To: Skywatcher who wrote (41)	11/27/2006 10:05:51 PM
From: Skywatcher	Read Replies (1) \| Respond to of 72

Air France-KLM Slides on Alitalia Deal Talk Monday November 27, 8:08 am ET Could another major airline industry merger be taking shape -- this time in Europe? According to press reports Nov. 24, one of the items on the agenda in a meeting between Italian Prime Minister Romano Prodi and French President Jacques Chirac was a possible merger of Air France-KLM (NYSE:AKH - News) and Italian state-controlled carrier Alitalia. But market watchers appeared to take a dim view of the prospects for such a deal. ADVERTISEMENT According to a Wall Street Journal report, Air France-KLM Chief Executive Jean-Cyril Spinetta said the airline recently began "exploratory talks" with Alitalia on possible merger talks. Amid the deal talk, shares of Air France-KLM fell 3.4% in Paris trading Nov. 24, while Alitalia dipped 2.5% on the Milan exchange. The U.S.-traded American Depositary Receipts of Air France-KLM shed 7.2% Nov. 24 to $38.69. The prospect of yet another airline megamerger prompted two big European brokerages to turn bearish on Air France-KLM. ABN Amro downgraded its opinion on Air France-KLM shares on Nov. 24 to sell from hold. ABN says the company has been "the darling of airline investors," up 119% in the past 12 months, compared with British Airways' (NYSE:BAB - News) 61% advance and Lufthansa's 69% rise. The brokerage believes that the Air France-KLM merger, which many analysts were skeptical about, is working. That's because of growing synergies and rising earnings estimates, supported by "early and cheap" fuel hedges and significant fuel surcharges. However, ABN notes that a slowing rate of earnings improvement, combined with challenges relating to consolidation in Europe and the U.S., threaten this status. As for Alitalia, ABN believes Air France is in a no-win situation. If the company invests significantly in Alitalia, the broker thinks it will be punished by the market, adding that sorting out Alitalia's business will be "a challenge." ABN forecasts lower profits for Air France-KLM in fiscal 2008 compared with fiscal 2007, positing that as the company's "very successful" fuel hedges expire, it will face a significant increase in unit fuel costs next year at a time when fuel surcharge revenues are falling. Meanwhile, Dresdner Kleinwort Wasserstein downgraded Air France-KLM to buy from hold, saying that the company has given in to political pressure in opening exploratory talks with Alitalia. However, even assuming modest synergies, Dresdner thinks Alitalia's growing losses would substantially dilute the company's earnings. The brokerage expects that will enable "economics to win out over politics" and that the preliminary discussions are unlikely to evolve into merger talks.