Air France and Dutch rival KLM are expected to seal a merger next week to form Europe's largest airline, in an innovative deal that will reshape the overcrowded sector, a union official said yesterday.

The two airlines have held alliance talks for over a year and have moved towards creating a common holding company, while retaining their separate identities, mainly to preserve KLM's international landing rights.

Air France's board is scheduled to meet on Monday, following management's meeting with its works council. KLM, which briefed its unions on the tie-up talks last week, declined to say whether its board would meet.

"Nothing seems to be standing in the way of an announcement. Who knows - we might even hear something on Monday evening," said Mr Henri Popelier, the head of KLM's VNC cabin crew union.

KLM and Air France both remained tight-lipped yesterday amid fevered media speculation that a deal could be just a matter of days away.

If approved by regulators, the effective takeover of KLM by Air France would create the world's third-largest airline in terms of kilometres flown, behind American Airlines and Delta. It would replace British Airways as Europe's leader.

Alitalia - the French carrier's partner within the SkyTeam alliance - has also scheduled a board meeting for Monday to discuss alliances. It wants to avoid being sidelined by an Air France/KLM partnership

Mr Popelier said VNC and other KLM unions were taking part in a previously scheduled two-day gathering of SkyTeam's labour leaders on Tuesday and Wednesday. "I wouldn't be surprised if we heard something ahead of the meeting or immediately after," he said.- (Reuters)