UPDATE 1-Merkel aims to work out friction-free Brexit with British PM

(Adds air transport)

LEIPZIG, Germany, Aug 21 (Reuters) - German Chancellor Angela Merkel said she would discuss how to make sure Britain's divorce from the European Union is as smooth as possible when she holds talks later on Wednesday with British Prime Minister Boris Johnson.

"Today I will talk with the British prime minister, who is visiting me, about how we can get the most friction-free British exit from the European Union possible as we must fight for our economic growth," said Merkel in a speech at conference on air transport.

Merkel also made clear that Britain would lose its rights in the EU's air transport market, saying a new agreement on air traffic would have to be negotiated after Brexit. As this would take time, it would be best to agree clear rules for the transition period to avoid disruption, she said.

"Of course in light of being a third state, which Britain will then be, not all advantages that we have in the EU can be guaranteed," she said.

(Reporting by Klaus Lauer Writing by Madeline Chambers Editing by Michelle Martin)