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Alitalia favors Air France-KLM bid

  • Story Highlights
  • Alitalia board chooses Air France-KLM as its preferred bidder for ailing airline
  • The Italian government will have final say and will make its choice next month
  • Air One, Italy's second-largest airline, also bidding for the company
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MILAN, Italy (AP) -- The board of Alitalia on Friday named Air France-KLM as its preferred bidder for privatizing the ailing state-controlled airline, but the ultimate decision will be made by the government next month.

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Ailing Italian airline Alitalia has attracted takeover interest from Air France-KLM and Air One.

The board said in a release that the Air France-KLM plan offers the "appropriate solution," saying the proposal was both financially more convenient and highly credible.

It issued its decision after the close of trading, following a 6 1/2-hour meeting during which it evaluated competing offers from Air France and the Italian airline Air One.

Air France-KLM said it would make an immediate capital increase of 750 million euros (US$1.08 billion) to revamp cabin design, in-flight entertainment and ground services "to restore Alitalia's image and its stature as an international company."

Alitalia shares rose 2.95 percent to $1.15 on opening on Friday as the market signaled eagerness at even a preliminary step toward the sale of the loss-making airline, which has been dragging on for a year.

While the board issued its decision on Friday, the government this week said it wanted time to review the offers, amid reports ministers are split over which company should be the sole bidder.

Both leading bidders said they would make an immediate cash injection and modernize the fleet while laying off workers.

Meanwhile, a consortium led by Italian business lawyer Antonio Baldassarre has launched a third bid.

Air France-KLM said it would make an immediate capital increase of $1.08 billion to revamp cabin design, in-flight entertainment and ground services "to restore Alitalia's image and its stature as an international company."

Air One, Italy's second-biggest airline, said it plans a total investment of $7.63 billion by 2012, including a capital hike of at least $1.44 billion.

It said Alitalia could break even by 2009 through a fleet renovation and a five-year, $4.32 billion investment on 130 new planes.

Although Alitalia has been losing money for years, analysts say its route network makes it an attractive investment.

The government owns a 49.9 percent share and has been shopping around since last December for a buyer -- first for a 39 percent share, then for its entire stake.

An auction failed this summer after bidders complained they were denied access to Alitalia books and not guaranteed full control of the airline.

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Even now, analysts have said it is not clear if the government would retain the right to exercise a so-called golden share, giving it a say in strategic and contentious decisions involving routes and employment levels.

The Alitalia board failed in two previous meetings in the last week to decide on a bidder. E-mail to a friend E-mail to a friend

Copyright 2007 The Associated Press. All rights reserved.This material may not be published, broadcast, rewritten, or redistributed.

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