Poses Serious Challenge To Rival Bidder Air One

Is there a ray of hope for Italy's struggling national carrier? On Thursday, Air France-KLM announced it will make an offer for Alitalia SpA.

The Wall Street Journal reports the only serious challenge to an offer from the world's largest airline, based on revenue, would come from Italian carrier Air One SpA. The tiny airline planned to make an offer ahead of Thursday's deadline.

As ANN reported, Air France-KLM was rumored to be the strongest contender for Alitalia, even after a seven-month effort by the Italian government to auction off the airline came to an unsuccessful end in July.

A third bidder in that auction, Deutsche Lufthansa, walked away from efforts to sell off the airline... saying taking on the struggles at Alitalia would have negatively affected its debt rating.

Indeed, it's something of a puzzlement why anyone would want Alitalia. The carrier loses about $1.5 million per day, according to the WSJ, and is well known for labor woes among its unions. A recent strike by transportation workers throughout Italy did little to make the airline more attractive to potential suitors.

Diogenis Papiomytis, aviation consultant with Frost & Sullivan, says Air France-KLM is the likely choice, due to past experience with such situations.

"Air France-KLM are the most suited investor to take over Alitalia, more so than Lufthansa because they've gone through the process of merging two totally different airlines," said Papiomytis. "And they are the ones who will benefit the most from Alitalia."

A takeover by Air One may be more suitable to some within Italy's fragile government, as Alitalia would remain in Italian hands... but there's considerable doubt the small airline has what it would take, financially and otherwise, to turn Alitalia around.

In contrast, Air France-KLM offers considerable resources... but it may ultimately follow Lufthansa's reasoning, that taking on the Italian airline would hurt its profitability.

Market value for Alitalia is said to be €1.1 billion; the airline also has about €1.2 billion of debt.

FMI: www.alitalia.com, www.airfrance.com