Air France said today it was in discussions with KLM aimed at deepening co-operation but that some key issues still had to be resolved.
Air France, which is already linked with US carrier Delta Air Lines and Italy's Alitalia in the SkyTeam grouping, has been trying for months to recruit KLM, which has its own transatlantic alliance with Northwest Airlines.
But speculation has mounted in recent weeks that the French and Dutch airlines seek to go even further, perhaps striking a comprehensive deal involving cross-shareholdings.
Analysts say any deal could open the way to an eventual merger of Air France, KLM and Alitalia. But outright international airline mergers have always proven to be difficult.
KLM has already made several unsuccessful attempts to merge with British Airways and walked away from a close co-operation with Alitalia in 2000.
Analysts see alliances, which allow airlines to extend their reach and reduce costs, setting the pattern for European consolidation once the bilateral rules dating back more than half a century are modified.
If KLM joins the Air France grouping, SkyTeam would be set to become the industry's biggest alliance, overtaking both the "Oneworld" alliance led by British Airways and including Aer Lingus and the "Star" alliance founded by Lufthansa and United Airlines.