The cabinet on Friday gave its green light to direct negotiations with Air France-KLM for the acquisition of the Treasury's controlling stake in Italian national carrier Alitalia.
Last Friday the board at Alitalia unanimously decided that a non-binding takeover bid from Air France-KLM offered the best guarantees for the airline's future.
The board's decision was forwarded as a recommendation to the government, which examined it at the last cabinet meeting of the year.
Speaking after the meeting, Economy Minister Tommaso Padoa-Schioppa said he told his government colleagues that he was in favor of Alitalia entering into direct negotiations with Air France-KLM.
''Today we gave a green light to negotiations with Air France-KLM. A formal position by the government will be adopted once these negotiations, which are at a crucial phase, are concluded,'' the minister explained.
Transport Minister Alessandro Ferraro after the meeting that he still had reservations over single, direct talks but that was the only one in the cabinet to have them.
The cabinet also gave the economy minister ''a mandate to monitor the negotiations on its behalf and this task will be carried out in full transparency and in close cooperation with market regulators to ensure total respect of regulations governing listed companies,'' the minister said.
''As is the case in all privatization operations, the formal act of sale will be the responsibility of the economy ministry,'' Padoa-Schioppa added.
''We must first see how negotiations proceed before deciding whether the Treasury should sell its full 49.9% stake in Alitalia. It is my hope there will be no negative surprises in these talks,'' the minister said.
In the event Alitalia does become part of Europe's largest airline, ''the Treasury will become a shareholder in the new carrier,'' Padia-Scioppa confirmed.
Air France-KLM said it intends to make an offer for 100% of Alitalia through a share-swap arrangement.
According to Padoa-Schioppa, the government decided to move up its decision, which had been expected by mid-January, because negotiations between the two carriers, including due diligence, would take eight weeks.
Earlier this week Alitalia CEO Maurizio Prato said a quick decision was needed because the company was ''on its last legs''.
Trading of Alitalia shares was suspended during Friday's cabinet meeting and when they returned to the floor they shot up by more than 7%.
Air France-KLM shares in Paris were also trading higher.
The Alitalia board chose the Air France-KLM bid over a rival offer presented by AP Holding, the parent company of Italy's biggest private carrier Air One.
This decision was initially expected before the middle of the month but was postponed twice after a split apparently developed within the government between those who believed Alitalia should become part of Europe's biggest carrier and those who wanted the airline to stand alone and retain its national identity.
The choice of Air France-KLM has been applauded by Alitalia pilot and flight staff unions but criticised by ground staff unions.
The choice has also been contested by the devolutionist Northern League, the Milan city and provincial governments as well as that of the region of Lombardy.
This because of Air France-KLM's intention of downsizing Milan's Malpensa airport from hub status in favor of Rome's Fiumicino airport.
In its offer, AP Holding promised to maintain Malpensa's status.
According to Prato, Alitalia cannot maintain two hubs.
Air France-KLM 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 and is its partner in the SkyTeam alliance.
AP Holding, on the other hand, created a strong team to support its offer which included Italy's second-biggest bank, Intesa SanPaolo, with Goldman Sachs acting as financial advisor, while the investment bank Nomura joined the core banking group backing the bid.
It had the support not only of local governments in the north but also Fiat Chairman Luca Cordero di Montezemolo, who is head of the powerful industrial employers association Confindustria.
The 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 the bidders dropped out because of the conditions imposed by the Treasury.
It was then decided that Alitalia management would negotiate the direct sale of the Treasury's stake.
