According to as-yet unconfirmed reports from trade unions and members of the Air France board, the French carrier has voted in favour of an alliance which will be formally unveiled on Tuesday.

The deal will probably take the form of joint management and cross-shareholdings, with a full merger a more distant prospect.

The picture has been further complicated by Alitalia, which has also voted to participate in any Air France-KLM tie-up, despite not having been included in their negotiations.

If a two- or three-way deal goes ahead, it will be Europe's first cross-border merger of leading airlines, and is likely to push other carriers into seeking overseas partners.

Getting together

It is thought that under the proposed deal, KLM and Air France would be placed under a common holding company, with Air France shareholders holding 80% of the new firm.

Not yet certain is the role of Alitalia, which has always stressed its willingness to take part in any broader alliance.

KLM, which has been in financial difficulty for some time, has already made several failed attempts to merge with British Airways, and walked away at the last minute from a deal with Alitalia in 2000.

It has been negotiating with Air France, Europe's second largest airline, for more than a year, but analysts now expecting the deal to finally go ahead.

Separate identities

Although any tie-up would effectively be a merger, the airlines will retain their separate identities because of bilateral aviation agreements between their governments and third countries which govern where airlines can fly.

The European Commission has won a mandate to negotiate with the US to replace all these bilateral transatlantic agreements with a single pan-European deal, and analysts expect more mergers once these rules are modified.