Air France-KLM announced on Thursday that it would make an offer for a controlling stake in Italian carrier Alitalia, while Germany's Lufthansa said it had decided against making a bid.
This reduced to two the number of contenders for Alitalia: Air France and the AP Holding group of Carlo Toto, which controls Italy's biggest private carrier Air One.
Sources at Lufthansa said the airline's board decided against a bid because acquiring Alitalia risked lowering the German carrier's credit rating to below investment grade.
Alitalia is expected to pick its future partner before the end of the year.
In a statement issued in Paris, Air France-KLM said that it was ready to make investments for a business plan which would be in line with the objectives of a transition plan drawn up by Alitalia CEO Maurizio Prato.
Prato's plan involved a capital hike, job cuts, the axing of unprofitable routes and the scaling down of activity at Milan's Malpensa hub in favour of Rome's Fiumicino.
Air France-KLM said in a statement that it was ''counting on the commitment and support'' of Alitalia staff and that its goal was for Alitalia to ''reconquer the domestic Italian market''.
According to Air France-KLM, ''a great number of European and intercontinental flights will be to and from Rome Fiumicino'' while ''numerous routes will be to and from Malpensa to meet the demands of business clients for long and medium-range flights''.
Air France-KLM Chairman Jean-Cyril Spinetta said the acquisition of Alitalia would be ''an important step in consolidating the European market and respects the group's economic and financial stability, including its target of a return on capital employed after tax of 8.5% by the end of fiscal year 2009/2010''.
News of the Air France-KLM boosted Alitalia shares by some 6% on the Milan stock market.
In order to present its bid, AP Holding enlisted the support of Italy's number two bank Intesa SanPaolo, appointed Goldman Sachs to act as financial advisor and brought in the international investment bank Nomura to be part of its core banking group.
Other members of the AP Holding team include Boston Consulting Group as industrial advisor, Sabre Airline Solutions as technical advisor and the firm of Bonelli Erede Pappalardo as global legal advisor.
Pundits have always seen Air France and Air One as the favorites to take over Alitalia.
This because Air France, Europe's largest airline after incorporating KLM, already has a 2% stake in Alitalia and is its partner in the SkyTeam international alliance, while AP Holding-Air One would ensure maintaining Alitalia's Italian 'character', a politically sensitive consideration.
The Italian government decided at the end of last year to sell most if not all of the Treasury's 49.9% stake in Alitalia.
An attempt to auction the stake failed this summer after all bidders dropped out because of the conditions imposed by the Treasury.
Air France-KLM refused from the beginning to take part in the auction because of the conditons imposed.
Prato was then called in as CEO of the troubled airline to negotiate the direct sale of the Treasury's stake.
He originally drew up a shortlist which also included Aeroflot Russian Airlines; the American private equity group Texas Pacific; and a group of investors headed by former Constitutional Court justice Antonio Baldassarre.
Last month Alitalia's board dropped Baldassarre's consortium from the list because it did not have the ''necessary requisites'' to present a bid, while Texas Pacific and later Aeroflot called themselves out of the running.
Despite being dropped from the shortlist, Baldassarre presented a letter of interest just the same on Thursday and said his group ''still considers itself in the running''.
Sources at Lufthansa said the airline's board decided against a bid because acquiring Alitalia risked lowering the German carrier's credit rating below investment grade.
