Struggling Italian carrier rushes to be bought by Franco Dutch rival

Alitalia, the once numero uno airline of Italy has finally agreed to be bought by Air France-KLM, the world's biggest airline in terms of revenues. The Italian airline company has been struggling with its revenues for the past five years and the decision has come in light of finances taking an all time low forcing Alitalia to accept the offer at a price considered much lower than that expected.

For years, Alitalia has been the pride of Italy, being the number one airline of the country but today Italy's national airline is on sale to avoid bankruptcy. Torn apart by political interference and five years of losses, Alitalia has almost rushed into accepting the deal which values the equity of the airline at just 138 million euros ($215 million), far less than expected. Air France-KLM had offered one share for every 160 shares of Alitalia as part of its binding offer, valuing Alitalia's stock at 0.10 euros a share.

Air France-KLM, which itself was founded from a merger of French and Dutch flag carriers in 2004 has offered to pay 608 million euros to buy back Alitalia bonds and pledged to underwrite a 1 billion euro cash call to shareholders as part of a commercial overhaul.

It has also set a deadline of March 31 for several conditions on its offer, including agreement with airports operator SEA over a 1.25 billion euros claim for damages for cutting slots at Milan's Malpensa airport in half to 170.

Italian Prime Minister Romano Prodi, who backed this merger earlier, resigned in January this year, triggering an election due in April, weeks after the deadline for a deal. Opposition leader Silvio Berlusconi, who is currently ahead in opinion polls, criticized the sale of Alitalia, saying he favors an Italian solution, much like many other government officials.

The sale of the loss-making airline is a hot issue ahead of Italy's general election on April 13-14 and Air France-KLM has stipulated it wants approval from the next government as well as from Alitalia's labor unions most of which have been on strikes and protests for a while now. A takeover of the near bankrupt Alitalia is expected to result in 1,700 job losses, which is about 15 percent of the workforce, according to both airlines.

The takeover on one hand would end the 60-year independence of a global Italian brand but would also on the other hand, avoid the flagship airline going broke as its cash reserves are quickly drying up with share prices going down to0.5383 euros from the once high of 24 euros.

The European Union has also banned any more state aid to the airline however, Italian government is expected to extend a credit line to Alitalia to allow the carrier to continue operations while the deal is completed and the capital hike carried out. Alitalia has warned it needs a fresh cash infusion by mid-year to keep flying.

This merger would not only revive the dying resources of Alitalia but would also allow it to consolidate its finances and bring them back on track by the year ending 2009.