Air France-KLM in merger talks with Italian carrier Alitalia

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The Independent Online

The French and Italian leaders will have talks today in Paris about the future of Alitalia, the Italian national carrier, after Air France announced yesterday that it is exploring the possibility of a merger of the two airlines.

They have been in partnership since 2001 but Alitalia is close to bankruptcy and last month the Italian prime minister Romano Prodi said bluntly that the end was nigh. The airline, he said, is "completely out of control, and I don't see any parachutes". He added: "Alitalia is going through the most difficult moment in its history." He said the company had until January to find a solution.

But a merger with its French partner - which has already swallowed Holland's KLM - is not necessarily what Mr Prodi had in mind. "I have always supported contacts between the two groups, but now I have a lot of doubts," he said yesterday. "Does it [Air France] want to create a great European transport group in which Italy would have a place, or simply grab the Italian air transport market, which is large and very lucrative?"

But Jean-Cyril Spinetta, president of Air France-KLM, said talk of a merger was nothing new. "From the beginning, the relations with Alitalia have always integrated a perspective of eventual fusion," he claimed. But before taking the idea further, Air France needed clarification on three points, he said. "Is Alitalia's business plan likely to bring about an economic balance satisfactory for the company? Do we share a common strategy for the future? And what synergies would result?"

Air France will have the whip hand in any negotiations, as its share price has risen 67 per cent this year and on Wednesday it announced a 26 per cent rise in profits to €374m (£253m) during the second quarter. Alitalia has not been in profit since 2002 and Giancarlo Cimoli, its chairman, recently forecast a loss of €300m for the year. It is beset with rigid work practices and suffers frequent strikes.

Tempting though it may be economically, a merger with the French company could be a political nightmare for the centre-left government, with vital union support and two communist parties among its coalition partners. On cue, the secretary-general of CISL, one of the powerful unions involved, said yesterday: "Italy must maintain its flag carrier. It would be a grave fact if Alitalia became the 'colony' of a foreign company. The union wants to be involved [in merger discussions] and not to find itself the dish which has been cooked and eaten."

Alitalia has been propped up for years by Italian governments unwilling to confront a variety of unattractive options. Yesterday Air France's shares fell 6.5 per cent on news of the merger discussions. Alitalia has been in talks with a number of leading airlines, including Thai Airways, about possible strategic partnerships.

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