The departure is the highest profile casualty so far from the coalition government's decision to put on hold all previous sell-off programmes planned by the former conservative administration. Other possible privatisations, including Aerospatiale and the Thomson electronics and defence group have been postponed or abandoned.
But despite the confusion over the new government's industrial policy, Lionel Jospin, Prime Minister, did make a significant breakthrough, approving the plan to turn the Airbus plane-making consortium into a fully-fledged private company.
Mr Blanc held talks for two hours on Thursday evening with Mr Jospin, urging the government to sell a 49 per cent stake in Air France, backed by a commitment to privatise much of the rest at a later date. Mr Jospin later said he hoped Mr Blanc would stay in the post.
The first hint of the possible resignation came earlier this week, when Jean-Claude Gayssot, the Communist transport minister, said the state must maintain its majority interest in the carrier. Mr Gayssot pledged soon after the election victory that he would not be "minister of privatisations".
In his resignation statement Mr Blanc said the government had "an absolute right" to insist on keeping a majority stake. But he added: "It was natural in such conditions that I would step down to allow the government to appoint a chairman capable of leading, without reservations, a policy true to its wishes."
Mr Blanc said he would leave Air France "with sadness, but also with pride". He said the airline was now "back on its feet" after years of turmoil and should make after tax profits this year of Fr1bn (pounds 104m), with bigger profits in 1998.
He was brought in to run Air France in 1993, when the carrier was on the brink of collapse. It made its first profit in 1996/97 for seven years, after huge job cuts and a controversial Fr20bn subsidy from the government.
The Blanc privatisation plan had included a large shareholding to be held by staff, similar to United Airlines in the US, which he said would be well above the 20-30 per cent originally anticipated. He said the scheme would have reconciled the demands of the financial markets, the government's wish for a continued minority stake and "social values" through the staff shareholding.