Air France Beating Tough Odds for Alitalia

Air France-KLM enters 2009 in prime position to clinch a fierce battle for a stake in Alitalia as the Italian carrier crawls toward its planned rebirth as a smaller, private airline in just a couple of days.

After a three month tussle for a stake of up to 25 percent, Air France-KLM appears, for now, to have the edge over Lufthansa despite aggressive German lobbying and overt political opposition from Rome, two sources close to the talks said.

At stake is access to Europe’s fourth largest aviation market amid a severe industry downturn, combining busy business routes from Italy’s export-driven north with one of the world’s top tourist destination markets targeting Rome in the south.

CAI, the group of Italian investors that bought Alitalia for 427 million euros ($592.8 million) last month, hopes to have a foreign partner in place when it officially relaunches the carrier with a revamped network and fewer staff on January 13, one of the sources said.

Italian media have reported that CAI has already picked Air France-KLM with a formal signing of the agreement expected next week, but both sources denied such a decision had been made.

Air France-KLM has long been considered a logical partner for Alitalia, with which it shares commercial ties. Both belong to the Skyteam alliance, and the French carrier last year agreed to buy Alitalia before the deal collapsed over union opposition.

British Airways, which called off merger talks with Australia’s Qantas Airways last month, is also vying to become Alitalia’s foreign partner but its pursuit of only a commercial alliance has hampered its bid.

Alitalia’s staff base of nearly 20,000 has been pared back to just over 12,500 employees and CAI has said it aims to boost Alitalia’s domestic market share to 56 percent from 30 percent at present.