Speaking task

8. Answer the questions: 1) Do you know a company that has acquired, been acquired by or merged with another company? What happened? 2) What difficulties would a national competitor have merging with your company, or a company you know? 3) What difficulties would an international or foreign company have in integrating with your company, or a company you know?

*Supplementary task

9. Before you read, answer the questions:

1) If two large companies merge, how can they save costs? How else can they benefit?

2) Which mergers can you think of between large international corporations in the last five years? Have they been successful? What problems have they encountered?

3) The article below is about the merger between KLM and Air France. What savings do you think they have been making?

10. Read this article by Kevin Done from the Financial Times and do the exercises that follow.

Air France-KLM ahead on savings

Air France-KLM, Europe’s largest airline, said on Monday it was achieving cost benefits from the coordination of its international sales and station organisations abroad faster than forecast. Patrick Alexandre, executive vice- president of international com­mercial affairs and operations at Air France, said the savings in international markets for the com­bined group in its sales and for­eign stations were forecast to total €92m ($119m) within four years.

This would account for more than 40 per cent of the total €580m syn­ergy benefits forecast for the whole group from the merger.

The takeover of KLM, the Dutch flag carrier, by Air France in 2004 was a pioneering step in the con­solidation of the fragmented European airline sector, and has been followed by the announce­ment of Lufthansa’s planned acquisition of Swiss International Air Lines.

The combined Air France-KLM has 25 international destinations, 107 long-haul and 198 short-haul, with the international operations accounting for 58 per cent of total passenger revenues. While merg­ing at shareholder level and consolidating financial reporting, Air France-KLM has continued to pur­sue a strategy of “one group, two airlines” by maintaining separate brands and fleet operations.

A large part of the synergy ben­efits is planned to come from increased revenues generated by the combination of the two groups’ global networks, centred on its twin hubs at Paris Charles de Gaulle and Amsterdam Schiphol airports. Around the world, it is seeking to save costs by coordinating sales strategies on 50 international routes and by ratio­nalising its presence at interna­tional destinations. Mr Alexandre said the biggest savings had come from the joint procurement of services, such as passenger and bag­gage handling and catering. Wherever possible the two airlines are seeking to rent offices and ticket offices jointly and to renegotiate station-handling services.

Synergy benefits in the first year to March 31 2005 in interna­tional commercial affairs had totalled €8.3m, up from the €7m originally forecast, while the fore­cast for cumulative annual sav­ings after four years had been raised from €78m to €92m, said Mr Alexandre.

11. Match the questions with the answers.

a) I know what a station is for a railway service, but what is a station for an airline?

b) Which airline took over which other airline in 2004?

c) What parts of the airline have been joined together and what parts have been kept apart?

d) What does the group intend to do with its presence at international destinations?

e) What will this rationalisation involve?

f) How do we know that the group has had a successful first year?

1) The financial reporting system is being consolidated and Air France-KLM is a single company as far as shareholders are concerned – but the airline has two hubs close to different cities, two brands and two fleets to look after.

2) Contracting services, such as passenger and baggage handling and catering, together; renting offices and ticket offices jointly; and renegotiating existing station- handling service contracts.

3) Well, they have had € 1.3m more synergy benefits than forecast in their first year - and that looks good.

4) It is the offices and other facilities managed by an airline at international destination airports.

5) The group wants to rationalise its stations at international airports.

6) Air France took over KLM.

12. Read through the whole article again and choose the best title for each paragraph.

a) Size and strategy

b) The bottom line

c) Swift savings for Air France-KLM

d) How it’s all going to work

e) The start of a trend?

13. What sentences are True or false (paragraph 4)?

a) 42 per cent of the Air France-KLM business comes from domestic flights; b) It is the policy of the group to keep a clear distinction between its two brands.