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Air France Bides Time on Alitalia Bid Amid Board Reluctance

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Alitalia Aircraft
An Airbus A320 aircraft, operated by Alitalia SpA, prepares to land at Fiumicino airport in Rome. Photographer: Alessia Pierdomenico/Bloomberg

Sept. 24 (Bloomberg) -- Air France-KLM Group showed reluctance to embrace a larger investment in Alitalia SpA, as the board of the French carrier requested more information from its Italian counterpart before committing to a next move.

“The board considered it vital to hear the information that Alitalia’s executive management should provide at a forthcoming meeting of the Italian carriers’ board,” Air France said in a release after its own directors convened yesterday to assess the relationship. The Alitalia panel is slated to gather Sept. 26, two people familiar with the schedule said last week.

Air France’s hesitance highlights the perils of investing in Alitalia as it loses money, piles on debt and is under siege from low-cost carriers chipping away at its domestic network. The Paris-based company already holds 25 percent of its SkyTeam partner bought in 2009, and aims to decide this year whether to add more; owning Alitalia would boost access to one of Europe’s biggest aviation markets and help feed trans-Atlantic routes.

“Taking into account the scale of the restructuring at Air France and the fact that other potential bidders are walking away, it’s obviously a good decision to take time before committing,” said Oddo Securities analyst Yan Derocles in Paris.

Financing Needs

Italy’s Infrastructure and Transport Minister, Maurizio Lupi, is scheduled to meet with his French counterpart on Sept. 26 to discuss the situation. The same day, Alitalia’s board gathers to review feedback from its banking adviser on plans to raise at least 300 million euros ($404 million) in fresh financing before the year’s end, said the two people, who asked not to be named because the meeting hasn’t been made public.

Air France has hired Lazard Ltd. and Mediobanca SpA as advisers to consider its next move on Alitalia, Italy’s Messaggero reported yesterday, without saying where it obtained the information. Alitalia in turn has hired Gruppo Banca Leonardo as seeks to end operating losses in 2014.

Air France may explore a partnership with another carrier to help shoulder its investment in Alitalia. Alitalia managers have met with Etihad Airways to discuss a commercial accord that could also see the Gulf carrier taking a holding, Il Sole 24 Ore reported last month, without saying where it go the information.

Open to Deals

Etihad, the third-biggest Gulf carrier, has been an ally of Air France since a pact in 2012, and may be a potential Alitalia investor after taking stakes in European operators including Air Berlin Plc and Aer Lingus Group Plc. A tie-up would enhance Italy’s connections with Asia via Abu Dhabi, complementing links to the west through Air France-KLM bases in Paris and Amsterdam.

James Hogan, Etihad’s chief executive officer, said today in Cologne, Germany, that the airline is willing to pursue additional equity investments. “We will consider more strategic partnerships if they add value,” he said in a statement.

Etihad is in advanced talks to buy a share of Polskie Linie Lotnicze LOT SA, Aviation Week & Space Technology reported this month without saying where it got the information.

Air France is displaying signs of caution on an Italian foray after managers last week meet with its central employee committee to discuss plans to end short-haul and cargo losses.

The meeting laid groundwork for measures including a possible 2,800 job cuts on top of 5,100 already in the works.

To contact the reporter on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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