Rome Backs Air France-KLM´s Talks To Buy Alitalia

The Italian carrier is valued at about 1.1 billion euros ($1.6 billion) on the market and has a similar amount of debt.

The Italian government on Friday approved exclusive talks between Alitalia and Air France-KLM, paving the way for the sale of the troubled national carrier to the world's largest airline by sales.

The move is the most decisive signal yet that Alitalia will end up in French hands, sparking an outcry from politicians in affected areas. Unions previously threatened to "paralyse" the country in response, but they reserved judgment after being caught off guard by the decision over the holiday break.

Talks on the sale of the airline -- favoured by popes and movie stars and a symbol of Italy's post-war economic boom in the 1950s and 1960s -- are expected to last eight weeks.

Air France-KLM welcomed the Italian government's decision and said it was committed to reaching a deal quickly to return to Alitalia to profitability.

Alitalia's board had already chosen Air France as its preferred buyer over tiny Italian rival Air One but had been awaiting approval from the government, which holds a 49.9 percent stake in the airline and has the final say.

The surprise decision came despite a barrage of lobbying by unions and regional politicians intent on keeping Alitalia in Italian hands, leaving Italy's fragile centre-left government sharply divided on which bidder to pick.

"Today the green light was given to talks with Air France," Economy Minister Tommaso Padoa-Schioppa told a news conference. "The government's formal deliberation, probably with a discussion in the cabinet, will happen when the conclusion of these talks -- which are entering a crucial phase -- is known."

An economy ministry statement later confirmed the government decision, which comes a year after Rome put Alitalia up for sale to stem losses of more than a million euros a day.

Analysts have long said the French carrier's financial muscle and proven track record made it a better choice than Air One, backed by Italy's biggest bank, Intesa Sanpaolo.

SHARES JUMP

Alitalia shares rose more than 8 percent on the news to 80 euro cents -- well above Air France's offer for a share swap that values the carrier at 35 euro cents a share, according to a source close to the talks.

The Italian carrier is valued at about 1.1 billion euros ($1.6 billion) on the market and has a similar amount of debt.

The Italian Treasury is expected to remain a shareholder in the combined group but Padoa-Schioppa said Rome had not yet decided whether to give up its whole stake in Alitalia.

"Nothing can be excluded," he said, adding that the talks did not guarantee a final agreement.

Alitalia did not comment on the government's decision, which had not been expected to come until mid-January.

The earlier-than-expected announcement appeared to catch Alitalia's combative unions by surprise, two of whom said they would put off any decisions on strikes or protests until they learned more about Air France's bid.

Others who had bitterly protested the Air France bid, such as the governor of Italy's northern Lombardy region, Roberto Formigoni, immediately cried foul, calling it a "scandalous" decision that ran counter to the country's interests.

Another Lombardy official said airlines left out of the running in the race for Alitalia could turn to the European Union on antitrust grounds.

Air France has not disclosed specific details of its bid, but said its plan to restructure Alitalia was in line with the airline's own survival plan unveiled earlier this year.

A key part of that plan is to develop Alitalia's Rome hub at the expense of Milan's main international airport, Malpensa, which had drawn the ire of politicians in Italy's north and unions who fear job losses.

Alitalia unions had previously warned of wildcat strikes if the government backed Air France, and three unions on Thursday warned they were ready to "paralyse" Italy for days if the ruling coalition did not come out against the French carrier.

Air One's chief, Carlo Toto, complained that the government made the choice without properly evaluating his offer and said Italy was selling a strategic asset off in a fire sale.

"Today, Italy, its citizens, the tourism industry and our companies that compete with ever-growing pressures from foreign markets have lost," he said in a statement.