Alitalia board picks Air France to buy airline

By Phil Stewart

ROME (Reuters) - The board of Alitalia AZPIa.MI chose Air France-KLM (AIRF.PA) as its preferred buyer on Friday, saying the French-Dutch carrier was a better match than a small Italian airline favored by the unions.

Its unanimous decision on Air France-KLM's non-binding offer must still be approved by the government, which holds a 49.9 percent stake in the money-losing flagship airline and might face pressure against letting it pass into foreign hands.

It urged the government to decide by mid-January on a bidder for exclusive talks, as planned, "in light of the company's critical financial situation."

Alitalia is hemorrhaging losses at a rate of 1.0 million euros a day and is weighed down by 1.2 billion euros of debt.

Air France-KLM, whose interest has stirred up nationalist sentiment in Italy, assured it would not downgrade the country's largest airline into a regional carrier.

It said it aimed to strengthen Alitalia and outlined long-term investments worth 6.5 billion euros ($9.34 billion), which would partly be used to upgrade the airline's ageing fleet of medium- and long-range aircraft.

That compares with 5.3 billion euros in planned long-term investments by the other bidder, Air One.

"The reputation of the Alitalia brand, a key asset for the whole group, will be developed in Italy and abroad," said Air France-KLM Chairman and Chief Executive Jean-Cyril Spinetta.