No Sub-Holding For Alitalia With Air France

February 7, 2008

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Air France-KLM would directly control Alitalia if it bought the ailing airline, sources close to the Franco-Dutch carrier said, after reports it could keep key landing rights by putting it in a sub-holding.

The sources added that the Italian government could be represented on the main company's board if it took a stake in the combined group through a planned share swap offer.

"If the Italian state... accepts Air France-KLM's share swap offer and decides to become a shareholder in the wider group, it would be represented on the board of the holding company," the sources said.

Air France-KLM is in exclusive talks which run to mid-March to buy the Italian government's 49.9 percent stake in Alitalia -- now worth about EUR953 million euros (USD$1.4 billion) with EUR1.2 billion of debt. Air France-KLM would then bid for the whole company.

Its offer, valued at about 35 euro cents per share, is being contested by domestic carrier Air One and a court has called for a freeze on new developments until February 20.

Earlier, a union leader said that Air France-KLM planned to keep Alitalia in a sub-holding for three years until the carrier, which is bleeding more than EUR1 million a day, broke even.

A union source said this arrangement would mean bilateral landing rights agreed at state level could be maintained by the airlines.

(Reuters)