UPDATE 1-Air France-KLM, Etihad, Air Berlin plan partnership

* Etihad signs code share with Air France-KLM

* Air France-KLM also signs code share with Air Berlin

* Deals first phase of larger partnership- Etihad

(Adds detail, background) By James Regan

PARIS, Oct 8 (Reuters) - Air France-KLM , AirBerlin and Abu Dhabi flag carrier Etihad, plan to offerpassengers access to some of each other's services from Oct. 28in a sign of improving relations between European and Gulfcarriers.

A code-share deal with Franco-Dutch airline Air France-KLMwill enable Etihad customers to fly on KLM's daily Amsterdam-AbuDhabi flight, while Air France customers will be able to travelon the daily Etihad service between Paris and Abu Dhabi, AirFrance-KLM said in a statement.

At the same time, Air France announced a new code shareagreement with Air Berlin, in which Etihad Airways holds a 29.21percent stake.

The deals are seen as a further step towards improvedrelations between European carriers and younger state-backedGulf carriers, which are aggressively growing to gain scaleglobally.

The relative success of the Gulf carriers has been met withcharges of unfair competition by struggling European and U.S.airlines, but some industry leaders like International AirlinesGroup Chief Executive Willie Walsh have backed morealliances between the two camps.

Sources close to the oneworld alliance, which includes IAG'sBritish Airways and American Airlines , said last weekthat Qatar Airways will become the first Gulf carrier to jointhat alliance in a deal to be announced this week.

Etihad, which is in competition with regional rivalsEmirates and Qatar Airways, said the deal will be thefirst phase of a much larger strategic partnership.

The agreement also will offer additional lucrative long-haulroutes to Air France-KLM passengers, enabling the carrier tosave on marketing expenses at a time when it is cutting staffand trimming its short-and medium-haul fleet to lower costs.

The carrier is facing increasingly tough competition fromlow-cost carriers in Europe, where its labour costs make itharder to compete, while Gulf carriers are also eating into itslong-haul premium business. The French flag carrier is sheddingmore than 5,000 jobs as it tries to return to growth.

Shares of Air France-KLM were up 1.2 percent.

Etihad has steamed ahead with its growth strategy this year,signing code share deals and picking up stakes in four carriersincluding Air Berlin , Virgin Australia and AerLingus .

It will look to secure more airline stakes, its chiefexecutive said on Sunday.

(Additional reporting by Praveen Menon in Dubai; Editing byHans-Juergen Peters)

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