Alitalia sells 25 percent stake to Air France-KLM

By Deepa Babington and Alberto Sisto

ROME (Reuters) - Alitalia agreed to sell a 25 percent stake to Air France-KLM for 323 million euros ($429 million), giving the Franco-Dutch airline wider access to Europe's fourth biggest travel market after years of courtship.

After a week of frenetic talks among politicians hoping for a last-minute coup for rival Lufthansa, Alitalia Chairman Roberto Colaninno announced Air France-KLM had beaten the German carrier to clinch the deal on Monday.

He forecast synergies with Air France-KLM worth 720 million euros for Alitalia over the next three years.

Air France-KLM and Lufthansa had been locked in a battle for more than three months over the stake, which offered a quick route into Italy's bustling aviation market, which meshes busy business routes in the north with heavy Rome tourist traffic.

Alitalia chief executive Rocco Sabelli said the French airline was the natural choice, starting with its deep knowledge of the Italian airline due to their longtime partnership.

"Air France-KLM ... showed determination and conviction that the others did not have," Sabelli told reporters.

Alitalia, which filed for bankruptcy in August last year, will be formally relaunched on Tuesday as a smaller, regional carrier with fewer staff and a revamped network, under the ownership of the CAI group of investors that Colaninno heads.

Alitalia will also be integrating recently acquired domestic rival Air One, allowing it to cut the average age of its fleet.

Some Alitalia employees held a mock "funeral" procession at Rome's main airport for the carrier, which began flying in 1947 and became a symbol of Italy's postwar economic prowess before falling on hard times due to labor strife and high costs.

Workers protesting job cuts at the carrier due to the restructuring carried a black coffin with a grey tombstone bearing Alitalia's logo and the dates: "5.5.1947-12.1.2009."

The Air France-KLM deal will not prevent Alitalia from managing its affairs autonomously, Colaninno said, adding that a lock-up arrangement would prevent Italian investors owning Alitalia from selling their stake to the French for four years.

FRANCO-ITALIAN ALLIANCE

The Air France-KLM alliance comes less than a year after the French carrier's takeover of the then state-controlled Italian carrier fell apart due to union opposition and criticism from Silvio Berlusconi, who was then campaigning for prime minister.

For Alitalia, the French alliance gives the newly restructured airline much needed backing on an international stage and a more prominent role within the Skyteam alliance.

Alitalia's dominance in the Italian domestic market will drive traffic to Air France-KLM's intercontinental network.