Air France and KLM Royal Dutch Airlines (KLM) have announced plans to merge which will take the combined group’s approximate value of £2.5bn and eclipse British Airways, previously Europe’s largest airline.

The announcement comes at a time when many airline industry experts are urging carrier companies to consolidate in light of the recent economic downturn.

Once the agreement has been finalised, Air France will be the dominant partner and the new group will be called Air France-KLM. It is also understood that both companies will keep their own national brand identity, logo and networks.

Air France will acquire KLM for around 784m euros and the deal could be finalised by April 2004. A merger could also save around £400m a year for the combined carriers with a cost saving of around 60 per cent.

A KLM statement said: “This major strategic step is unprecedented in the European airline industry and is expected to create substantial value for shareholders. The boards of both companies believe that this proposed combination is in the best interest of customers, shareholders and employees of both groups and represents a significant opportunity for future growth. Details: www.airfrance.com