Air France-KLM Says It's a Candidate to Buy Alitalia

Air France-KLM Says It's a Candidate to Buy Alitalia (Update1)

By David Whitehouse

Dec. 6 (Bloomberg) -- Air France-KLM Group said it wants to buy Alitalia SpA, the unprofitable airline that the Italian government is trying to sell, in a bid to revive it.

Air France-KLM has sent a non-binding expression of interest to Alitalia, the Paris-based carrier said in a statement today. Air France said that it's one of three candidates to buy Alitalia, which will decide on a partner by the end of the year. This decision will trigger exclusive talks and a firm bid, the statement said.

The buyer will inherit an airline that hasn't reported an operating profit in nine years and is losing more than 1 million euros a day. The government gave Alitalia Chairman Maurizio Prato a mandate to seek a buyer for the state's 49.9 percent stake after cancelling an auction in July when the bidders dropped out. European airlines are looking for merger opportunities as they prepare to face tougher competition on U.S. routes under an ``open skies'' treaty that takes effect in March.

``The buyer is just going to be buying the takeoff and landing slots, and their frequent flyer program,'' said Marco Elser, chief executive officer of Advicorp, a Rome-based investment company, before the announcement was made. ``If they don't implement that kind of strategy, they are buying a poisoned apple.''

The carrier may not fetch much because it's more than 1.2 billion euros in debt and is hobbled by growing competition in Italy, analysts said.

``Our implied equity valuation for Alitalia, calculated on the basis of the future financial forecasts, appears to fall below zero, unless airfares rise materially,'' Deutsche Bank analysts including Chris Reid said Nov. 28.

Air France-KLM is an Alitalia shareholder and the carriers are partners in the SkyTeam alliance. Air France owns about 2 percent of Alitalia, which was initially slated to join the 2004 merger between the French and Dutch airlines that created Air France-KLM. Alitalia was excluded because of mounting losses.

BLOOMBERG