Italy's senior administrative court has effectively ended Italian airline Air One's hopes of halting exclusive talks by Alitalia with prospective buyer and rival Air France-KLM.

The court on Tuesday rejected Air One's request to overturn a lower court ruling allowing Alitalia and larger carrier Air France-KLM to continue exclusive talks, which should result in a formal bid for the state-owned carrier this week.

The court ruled that the process that led to the selection of the best bidder for Alitalia had been conducted "in an adequate way, guaranteeing the proper competition between the potential buyers."

A lower court in the Lazio region in February had rejected Air One's request to suspend the talks and allow it to re-enter the race.

Air One had first taken part in the government's auction process which was abandoned last year after the bidders pulled out. Air France-KLM did not take part in that process, saying conditions were too restrictive, and then announced its interest late last year, when Rome picked it as preferred bidder.

On Monday, Air France-KLM's board said it would go ahead with a formal offer for the struggling airline on condition that Alitalia's strike-prone unions accepted its terms.

The offer is to be presented on Friday.

A union source, who spoke on condition of not being named, said Alitalia's unions would meet Alitalia and Air France management early next week to discuss the proposal and that the talks were expected to continue until Easter, which this year falls on March 23.