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Air France drops Virgin stake in exchange for tighter governance

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Air France drops Virgin stake in exchange for tighter governance

FILE PHOTO: Journalists attend a new conference where Air France-KLM announce their 2018 annual results in Paris

PARIS (Reuters) - Air France-KLM <AIRF.PA> said on Wednesday it had dropped plans to buy a stake in Virgin Atlantic as the two airline groups combine their transatlantic partnerships with Delta Air Lines <DAL.N> into an expanded joint venture.

Under the three-way deal struck in 2017 and approved by U.S. regulators last month, Virgin had agreed to sell a 31% holding to Air France-KLM for 220 million pounds ($282 million) - effectively ceding joint control to Delta, which already owns a 49% Virgin stake, and its Franco-Dutch partner.

But the companies now agree that "Air France-KLM's acquisition of a stake in Virgin Atlantic is no longer necessary", Air France said in a statement, confirming a Monday announcement by Virgin founder Richard Branson.

The understanding was reached after Virgin agreed to provisions bolstering Air France-KLM and Delta's effective control of the venture without the need for an additional Virgin stake. Branson had previously voiced reluctance to sell.

The governance deal reached "in parallel" will bring "simplified decision-making processes that will enable the joint-venture to deliver its full synergy potential", Air France said in its statement.

The dropped stake purchase is also welcome source of extra cash for Air France-KLM as Chief Executive Ben Smith pursues an ambitious and costly fleet overhaul at Air France, KLM and expanding budget operator Transavia.

Financial terms of the deal to cancel the agreed purchase were not disclosed and are being finalised, the group said.

(Reporting by Laurence Frost; Editing by Mark Potter and Louise Heavens)