BRITISH Airways was yesterday eclipsed as Europe's biggest airline with the much-anticipated merger of Air France and KLM.

The UK airline said it was "not threatened" by the move, but added that it wanted competition watchdogs to scrutinise the deal.

While the Air France-KLM planned alliance was well documented, its formal agreement is a turning point for the industry.

Not only is it the first time two major European carriers have agreed to work so closely together, it is likely to spark a period of consolidation in a market turned on its head in recent years.

The voracious appetite for budget prices and the devastation wreaked by the September 11 terrorist attacks, has left a radically different airline industry compared with five years ago.

Dominic Edridge, transport expert at Commerzbank Securities, said the main issue to emerge from the deal was that it quashed rumours that BA and KLM were to join forces.

He said: "The Air France-KLM deal finally ends all BA-KLM speculation but I doubt whether this is going to mean too many big changes in European aviation.

"Both Air France and KLM are big rivals to BA and compete on European routes.

"But all carriers are still bound by the existing restrictions attached to transatlantic flights.

"Things are not really going to change until we have a new US-Europe air agreement, which will lead to a go-anywhere open-skies policy."

The Air France-KLM tie-up, which is expected to be completed in the next few weeks, will form an aviation group with annual revenues of about £14bn.

A BA spokeswoman said: "We do not feel threatened by the Air France-KLM news but we would hope that EC competition regulators have a good look into it.

"The EC has to ensure there is fair competition and we would expect regulators to look as carefully at this deal as they did with our proposed link-ups."

Experts believe BA and other carriers are likely to carry on seeking smaller marketing link-ups.

BA has aborted major deals with KLM and American Airlines in the past.

It has strong links with Spanish carrier Iberia.

Mr Edridge said: "A BA-Iberia link-up makes a lot of sense, but the Air France-KLM alliance may be the only one of its kind for a while."