Alitalia Agrees to Air France-klm Takeover

The Italian national airline, Alitalia, has agreed to a takeover by Air France-KLM in a cut price €138m (£106m) deal that had faced strong political and union opposition.

The struggling airline has been losing €1m a day and had been heading towards bankruptcy. It has been in the red for the past five years and has a debt of €1.2bn. The European Union has banned any further state aid to prop the business up.

The Italian government, which holds 49.9% of Alitalia, has been trying to sell the business since the beginning of last year. The fate of the national carrier has been a hot political issue ahead of next month's general election and any deal is conditional upon the approval of the new government. The opposition leader, Silvio Berlusconi, was an outspoken critic of plans to sell the airline but recently softened his stance.

There has been anger at plans to retain only a single hub in Italy, at Rome's Leonardo da Vinci airport, cutting the number of slots at Milan's Malpensa by half.

The government will meet in Rome this week to discuss the offer.

Air France-KLM, itself the result of a merger between the flag carriers in France and the Netherlands in 2004, said Alitalia would maintain its identity and head office with the group. An Italian will also join the Air France-KLM board. The Alitalia board agreed to the takeover after a marathon meeting that lasted into the early hours of yesterday morning. Air France-KLM plans to cut 1,600 jobs from the Italian airline.

The offer is 80% lower than the current Alitalia share price. But Air France-KLM has pledged a capital injection of €1bn and it will pay €608m to buy back Alitalia bonds.