It appears the obstacles in the way of a British Airways - KLM Royal Dutch Airlines merger were insurmountable. The two carriers issued a joint statement last week saying they will not proceed any further on talks concerning combining their respective businesses.

BA and KLM have been in merger discussions since June. The combined airline would have been the third largest in the world and the largest airline by far in Europe.

"We always recognized that this would be a complex transaction, involving not only commercial and economic issues, but also aeropolitical, regulatory and other matters. Although we made considerable progress, it has not been possible to resolve these," said Rod Eddington, chief executive of British Airways, and Leo van Wijk, chief executive of KLM.

"Although relations between the two parties remain amicable, we have had to decide to draw a line under these negotiations.''

Both airlines have had their share of merger problems recently. BA has maintained on-again/off-again talks with American Airlines for years, although these have since cooled considerably, and KLM's recent merger discussions with Alitalia were called off last minute earlier this year.

Complicating the BA-KLM merger were the two carriers' existing relationships with other US airlines. KLM has had a long-standing, and regulatory approved, alliance with Northwest Airlines, while BA and American remain partners in the oneworld alliance, which formed last year.

The former partnership, however, has soured since BA announced its talks with KLM. American has reportedly been shopping around for other potential European alliances, with Qualiflyer among the frontrunners.

In addition to their merger difficulties, both BA and KLM have hit financial skids this year, although the chief executives last week made efforts to emphasize the positive going forward.

"In the meantime, we will continue to take steps to improve the performance of our company, through our fleet and network strategy, through continued product improvement and by working with our established alliance and franchise partners," BA's Eddington said.

Leo van Wijk of KLM, said: "During the discussions with British Airways, KLM has successfully continued to focus on the development and the profitability of the company. While we continue to believe that consolidation in European aviation industry is inevitable, we at the same time remain convinced that for the foreseeable future, KLM has bright prospects on its own.

"We are well positioned in Europe, are financially strong, and have a profitable and growing business. Together with Northwest Airlines, we have one of the most developed transatlantic alliances," he added.

Lord Marshall, British Airways' chairman, agreed that European consolidation is inevitable for the airline industry.