UPDATE 1-Air France-KLM complains over Austrian Airlines sale

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PARIS, Dec 11 (Reuters) - Air France-KLM AIRF.PA filed a complaint to the European Union on Thursday over Austria's plans to sell its national airline to German carrier Lufthansa LHAG.DE, saying the deal depended on unfair state aid.

Air France-KLM said a decision by the Vienna government to cancel a 500 million euros ($659.5 million) loan to Austrian Airlines as part of the sale to Lufthansa LHAG.DE had not been on the table when Air France-KLM was itself considering bidding for the airline.

“Air France-KLM is convinced that the sale of Austrian Airlines to Lufthansa has not been carried out in the best interests of the parties involved or at a normal market price,” Air France-KLM said in a statement.

“This sale therefore includes elements of state aid requiring detailed analysis by the European Commission.”

Lufthansa signed the deal to buy loss-making Austrian Airlines AUAV.VI last Friday in a move that would push it past Air France-KLM to become as Europe's biggest airline.

In a two-step deal, Lufthansa agreed to buy Austrian state holding company OeIAG’s 42 percent stake in Austrian Airlines and said it would take full control for up to 377 million euros once the EU’s executive Commission approved the tie-up.

Lufthansa Chief Executive Wolfgang Mayrhuber said after tyhe Dec. 5 signing he considered the risk of the Commission blocking the deal to be “close to zero”.

The dispute comes as Lufthansa and Air France-KLM compete for an alliance with Italy's Alitalia AZPIa.MI. European airlines are in a merger frenzy to escape falling traffic. ($1=.7581 Euro) (Reporting by Tim Hepher; Editing by Hans Peters)