Italy's economics minister on Friday said he supported Air France-KLM's bid for the troubled national carrier Alitalia and announced the companies would open exclusive talks immediately.
Economics Minister Tommaso Padoa-Schioppa, speaking after a Cabinet meeting, said the talks would last eight weeks and be conducted by the company's management. The Economics Ministry holds a 49.9 percent stake in the airline.
"I expressed a favorable opinion that Alitalia hold exclusive talks with Air France-KLM," Padoa-Schioppa told journalists.
He expects a positive outcome, but added that the situation for Alitalia remains "extremely delicate."
Alitalia shares rose strongly on the announcement, closing up about 8 percent at 0.80 euros ($1.18) at the Milan stock exchange Friday. Shares in Air France-KLM climbed 1.62 percent to 23.85 euros ($34.82) in trading in Paris.
"Air France-KLM will bring to Alitalia its expertise in management, money, help with renovating itself and a capacity to re-establish itself on the Italian market," said analyst Pierre Boucheny of Kepler Equities in Paris. "Air France-KLM has shown that it can bring to Alitalia the means to be profitable again."
Air France-KLM, the world's largest airline company by revenue, was seen as a top contender for the Italian airline and last week, Alitalia's board chose the Franco-Dutch bid over a competing offer by Italian carrier Air One SpA.
But the government's move drew some criticism as it came at the expense of the Italian bidder, while unions demanded to be involved in the coming talks.
Padoa-Schioppa said he agreed with Alitalia's board that the Air France-KLM offer was the best-placed to turn around the struggling airline. He said that Air France's integration with KLM Royal Dutch Airlines, completed in May 2004, gave the airline invaluable experience.
Air France-KLM said in a statement it was "very satisfied" with a decision that represented "an important step forward."
"We hope to rapidly come to a solid accord, opening the way for profitable growth for Alitalia," the group's Chief Executive Jean-Cyril Spinetta said in the statement.
The Economics Ministry said it will monitor the talks on behalf of the government. After they end, Air France-KLM is expected to make a binding offer which the Italian government must vote on.
Padoa-Schioppa said no decision had been made on how much of the Italian government's stake would be sold.
The government had been expected to decide by mid-January. But the minister heeded Alitalia calls for a swift decision and moved quickly to back the airline's board in the face of rising domestic opposition to Air France-KLM's bid.
Some Cabinet members reportedly favored Air One to keep Alitalia in Italian hands. Officials in the country's affluent north have protested the Air-France-KLM bid because it would make Rome's Leonardo da Vinci airport the nation's only hub at the expense of Milan's Malpensa.
The head of Air One, Carlo Toto, lamented that his company hadn't even been given the chance to describe its offer in detail and that there had been no "serious and clear comparison between the two plans."
Roberto Formigoni, the president of the region that includes Milan, called the government's move an "outrageous decision against Italy's interest."
The government has been trying to unload the loss-making Alitalia since December 2006. It was forced to scrap a tender last summer after all potential buyers gradually pulled out, saying the terms were too stringent and would not allow them to implement a turnaround strategy.
In presenting its bid, Air France-KLM said it would revamp cabin design, in-flight entertainment and ground services "to restore Alitalia's image and its stature as an international company."
The Franco-Dutch carrier also proposed a share-swap, although it has not disclosed the share-swap ration or the timing of the offer. Layoffs are expected to be similar to those already envisaged by Alitalia's own restructuring plan - between 1,000 and 1,700 job cuts. ( AP )