AVIATION

Air France-KLM buys stake in Alitalia

After lengthy talks, Italy's ailing carrier Alitalia has agreed to a partnership with Franco-Dutch rival Air France-KLM. The Italian company board approved a deal giving Air-France KLM a quarter stake in the restructured airline.

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AFP - Italy's struggling flagbearer Alitalia takes to the skies on Tuesday under private ownership after prominent Italian business leaders teamed up with Air France-KLM for a makeover.

Air France-KLM is to pay 323 million euros (432 million dollars) to the Italian Air Company (CAI) for a 25 percent stake in the relaunched airline, nine months after nearly clinching an outright takeover.

Also in the mix is Alitalia's chief domestic rival Air One, which itself was struggling and agreed to a merger.

Rocco Sabelli, picked by CAI chairman and Piaggio scooter magnate Roberto Colaninno to run the company, said Air France-KLM showed a "determination and a will" that other possible partners including British Airways and Germany's Lufthansa did not.

While Air France's stake is the largest, it will have only three of the 19 seats on the relaunched airline's board of directors, and two of the nine seats on the executive council.

The 25 percent stake cannot change for four years as the Italian investors cannot cede shares to foreigners during the period.

In making the acquisition, Air France beat out its great European rival Lufthansa, which is in full expansion on several other fronts.

Lufthansa, which already operates a subsidiary, Air Dolomiti, in Italy, plans to launch a new one, Lufthansa Italia, in February.

Had Alitalia gone with Lufthansa, it would have joined the Star Alliance, to the detriment of SkyTeam, in which it has partnered with Air France for years.

The Italian aviation market is Europe's third largest, with more than 30 million passengers per year including about 12 million on international routes.

Air France-KLM and Alitalia face an uphill battle in reconquering the domestic Italian market.

Union actions forced Alitalia to cancel hundreds of flights last year, creating openings for aggressive rivals, notably the budget airlines easyJet of Britain and Ireland's Ryanair.

Air France-KLM was forced early last year to withdraw a takeover offer agreed with then prime minister Romano Prodi in the face of union hostility as well as an unfavourable electoral climate dominated by pledges from the current prime minister, Silvio Berlusconi, to keep the airline in Italian hands.

Nine months later, Berlusconi has welcomed the partnership with Air France as the most "advantageous."

The streamlined company run by CAI has some 12,000 employees after shedding more than 3,000 jobs.

Its fleet of 148 planes will fly 670 routes a day, down more than a third from the 1,050 routes flown by Alitalia and Air One each day a year ago.

Thirteen of the intercontinental flights now originate in Rome, flying to Accra, Boston, Buenos Aires, Caracas, Chicago, Lagos, Miami, New York, Newark, Osaka, Sao Paulo, Tokyo and Toronto, while Milan's Malpensa airport retains just three -- New York, Sao Paulo and Tokyo.

The right-wing Northern League party, an essential component of Berlusconi's government, fought hard against Malpensa being relegated to second fiddle, warning that northern businesses would suffer.

The Italian government, which had a 49.9 percent stake in the old Alitalia, took on the debt to facilitate the sale.

Leading shareholders in the new Alitalia include the Benetton Group, Italian "boss of bosses" Emma Marcegaglia, Pirelli tyre group president Marco Tronchetti Provera, and banking giant Intesa Sanpaolo.

Together, they put up 1.052 billion euros to acquire the passenger operations of Alitalia, and another 300 million for Air One, whose managing director Carlo Toto reinvested 60 million euros in the new company.

Other activities including cargo and maintenance have been ceded to help pay off the old company's debts estimated at three billion dollars.

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