Air France-KLM set for Alitalia victory

Air France-KLM sought to deal a death blow to the rival airline bidding for Alitalia, Italy's loss-making national carrier, by unveiling a 750m (530m) plan to refurbish the carrier's fleet.

Analysts saw the Franco-Dutch giant as the heavy favourite yesterday to win the 49.9 per cent stake that isbeing auctioned by the Italian government after it revealed its plan to restructure the stricken airline. Air France is bidding against Air One, a domestic Italian carrier. The Italian government is expected to make its decision today.

Under Air France's plan, it would raise the 750m through the issuance of new shares, which it would use to update the interior of Alitalia's planes and to launch a marketing plan to attract international clients back to the carrier. It would also replace the company's old Boeing 767s and McDonnell Douglas MD80s with new aircraft.

Alitalia has not made a profit in nearly a decade. Air France, having gone through its own recovery in the 1990s and having integrated with KLM in 2004, is thought to be better prepared to restructure the company. Perhaps more importantly, the carrier has pledged not to push through any job cuts beyond the 1,700 already announced by Alitalia. Air One would eliminate an additional 2,000 positions.

Air One has said that it will invest 1bn initially as part of a 5.3bn investment plan through to 2012. It is unclear how easy it would be for the company to raise the necessary funds. However, in its favour is the support in some sectors of the Italian business and political community for an "Italian solution" that would keep the airline controlled by domestic interests.

If a definitive winner is chosen tomorrow, it would bring to an end a long and sorry chapter for the Italian government, which first signalled its intention to sell its stake in the carrier a year ago. The process has run into problems repeatedly, most recently in October when the last of the previous bidders dropped out of the auction over objections to onerous terms that were being imposed by the government.