Alitalia shares dropped by 3% on Friday after Air France-KLM said any decision on its acquisition of a controlling stake in the carrier will need the approval of the Italian government which comes out of early elections in April.
However, Air France-KLM said it would continue to negotiate with Alitalia on the terms for a possible merger.
Speaking on Thursday, Air France-KLM Chief Operating Officer (COO) Pierre-Henri Gourgeon said that his airline was ''following the evolution of the political situation in Italy with the utmost attention''.
He added that the acquisition of the Treasury's controlling 49.9% stake in Alitalia ''will go ahead only if the next Italian government is in favor''.
At the same time, the COO said, Air France-KLM intends to present a binding offer by the established deadline of mid-March.
The caretaker government of Premier Romano Prodi said the move by Air France-KLM was ''an act of common sense''.
''This government will follow the negotiations through the middle of March, when a decision will be made on the sale. It would be perfectly normal if Air France-KLM then decide to seek a second green light from the next government,'' a government source said. Any offer will first have to be accepted by Alitalia management and then by the government, while the Italian stock market watchdog Consob will also have to give its approval because the French-Dutch offer will involve a share-swap operation.
Pundits said Alitalia shares nosedived because current polls indicate a victory in April by the now opposition center right, which includes the devolutionist Northern League.
The Northern League is staunchly opposed to Alitalia's plan, approved by Air France-KLM, to strip Milan's Malpensa airport of its hub status and more than halve its flights there.
The stock also suffered because of comments by a leading economist for Forza Italia, the biggest party in the center right, who said Alitalia should first be allowed to go bankrupt after which a new airline could be built from scratch without the weight of current labor contracts.
''After the elections this hot potato will end up in our hands. I am in favor of a piloted bankruptcy which would also play in Malpensa's favor. We could then level everything, including contracts, and start anew,'' Renato Brunetta said.
The strategy indicated by Brunetta was the same followed by national carriers Sabena of Belgium and Swissair, which after collapsing were restructured and then sold to the private sector.
Despite the possibility indicated by Brunetta, for the moment Italy's three main trade unions - CGIL, CISL and UIL - have applauded Air France-KLM's decision to seek the next government's approval.
CGIL leader Guglielmo Epifani said on Friday that Air France-KLM management ''is much wiser than many others'', while CISL chief Raffaele Bonanni said the position of the French-Dutch carrier was ''very responsible'' and the head of the UIL, Luigi Angeletti said the move was ''inevitable''.
Air France-KLM President Jean Cyrill Spinetta has always been very careful not to ruffle the feathers of the Italian unions and on Thursday the COO, Gourgeon, reiterated his company's position that ''nothing can be done against the unions''.
Observers noted that Air France-KLM's move on Thursday also appears to be related to a ruling that an Italian regional administrative court is expected to give next Wednesday on the legitimacy of exclusive talks between Alitalia and Air France-KLM .
The ruling will be in response to a suit filed at the end of last month by AP Holding, the parent company of Italy' biggest private airline Air One, which also wants to present a binding offer for Alitalia.
The Italian government decided at the end of 2006 to sell most if not all of the Treasury's stake in Alitalia.
After an attempt to auction the stake failed last summer, it was decided that Alitalia management would negotiate the direct sale of the Treasury's stake, with the government having the final word on the deal.
Alitalia's board on December 21 unanimously chose Air France-KLM over AP Holding, the two remaining bidders, because it said it offered the best guarantees for the national carrier's future.
AP Holding has since announced that it has additional backers and was ready to present a revised offer. Air France-KLM, Europe's biggest airline, had been a front-runner from the start thanks to its size as well as the fact that it already owns a 2% stake in Alitalia, making it the second-biggest shareholder after the Treasury.
