Air France to be first euro float

THE FRENCH government is to sell off 20 per cent of Air France next month, it has announced. Air France executives on Friday set the date of the pounds 400m sale, which will be the first privatisation in euros, for the first week in February.

Although airline stocks are currently out of favour with institutional investors because of the global economic slowdown, the shares are expected to be snapped-up mainly by French retail investors.

"There is a natural appetite for big airline stocks, and I have no doubt the sale will be a success," said one City analyst. "The question is, whether the shares will hold their value in the long-term."

Last year, Air France reported a small profit, after seven years of being reliant on government subsidies - totalling FFr20bn (pounds 2.2bn) - to avoid bankruptcy. The airline needs to show that earnings are likely to rise to persuade investors to buy its stock rather than that of the other state- owned airlines.

The sale will kick-off what is set to be a year of airline privatisations in Europe. The Spanish government has already said it plans to sell the Spanish national carrier, Iberia, this year. Greece and Portugal are also limbering up to sell their national airlines, Olympus and TAP.

Air France has embarked on a three-year plan to cut costs and rebuild its hub at Roissy airport near Paris. It is also developing shuttle air services from Paris to other major cities in France such as Toulouse, Nice and Marseilles.

Air France's chairman, Jean-Cyril Spinetta, who was appointed in September 1997, said: "When I was chosen to do this job, the government asked me to get the company ready for partial sale to the public. Now we are ready for the sale."

The Asian economic crisis is expected to hit Air France less than its rival, British Airways, because the French Airline has less exposure there. However, Air France faces problems of its own, many of them in its domestic market. The airline faces competition both from high-speed trains and incoming foreign airlines, including British Airways, which already owns 70 per cent of the French domestic carrier Air Liberte and has made a bid for the state-owned internal airline AOM.