Air France and KLM Royal Dutch Airlines announced that they expect to conclude an agreement that would lead to the creation of Europe's leading airline group through a share exchange offer by Air France for KLM common shares. The new group will be called Air France-KLM and will capitalize on two well-known brands, strong hubs and complementary networks. 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 further growth.

Jean-Cyril Spinetta, Chairman and Chief Executive Officer of Air France, said: "We have always been convinced of the necessity of consolidation in the airline industry. Today, we announce a combination with KLM that will create the first European airline group, which is a milestone in our industry. This will bring significant benefits to customers, shareholders and employees. Capitalizing on the two brands and on the complementary strengths of both companies, we should, within SkyTeam, be able to capture enhanced growth opportunities."

Leo van Wijk, President and Chief Executive Officer of KLM, said: "KLM has been pointing out the need for consolidation in light of the challenges facing our industry, and we have not made it a secret we were looking for a strong European partner. Through this innovative partnership with Air France and our subsequent expected participation in the SkyTeam alliance, we are confident that we have secured a sustainable future for our company. "

Air France and KLM expect to sign the transaction agreement within the next few weeks.

Combined, Air France and KLM serve 226 destinations worldwide, operate a fleet of some 540 aircraft and employ approximately 106,000 people (in the fiscal year 2002/03).

In creating one group, while maintaining two operating companies and building on the strengths of their respective brands, hubs and networks, the group will continue to focus on three core businesses: Passengers (77 per cent of aggregate revenues), Cargo (14 per cent) and Maintenance (4 per cent). The proposed transaction will strengthen the SkyTeam alliance, which will become the second largest alliance worldwide. In most areas, the group will
also continue to benefit from ongoing cooperation with the respective partners of both airlines. Furthermore, in the medium term, the combined group could be reinforced by the potential integration of Alitalia.

Air France and KLM have identified and evaluated a number of areas for potential synergies. These are expected to gradually increase and have a positive impact on the consolidated operating income. Synergy benefits should be realized through network optimization, improved deployment of assets (both for the passenger and cargo businesses), better offerings in maintenance and cost savings in the fields of procurement, sales and distribution, maintenance and information technology. Customers can expect to benefit from these synergies through an extended route network with increased flight frequencies, attractive pricing and seamless service throughout the network.

The Chairman and CEO of Air France will be Chairman and CEO of Air France-KLM. The CEO of KLM will be Vice Chairman of the Air France-KLM Board.