Air France and Alitalia in tentative merger talks

Air France KLM, under pressure from Rome to commit to a merger with Alitalia, announced exploratory talks with the ailing carrier on Thursday but reaffirmed conditions for a deal.
Chief Executive Jean-Cyril Spinetta, unveiling higher second-quarter operating results which contrasted with Alitalia's persistent losses, stressed the talks were at early stages and repeated demands for Alitalia to be privatised.
But Air France KLM shares fell sharply on the mention of a merger that many analysts say could eat into profits at the world's largest airline by revenues, while Alitalia bounced higher in the latest round of bet-taking on a rescue deal. "At Alitalia's request, we have opened an exploratory phase of discussions," Spinetta told a results news conference.
Air France KLM shares were down 7 percent at 30 euros by 1035 GMT, while Alitalia shares were up 2.8 percent at 0.9685 euros after rising more than 4 percent earlier on Thursday. In Rome, Alitalia said the exploratory talks with Air France KLM about a possible tie-up were not exclusive. It said it was looking for a partnership with a "sound" industrial basis.
The disclosure of talks came as Italian Prime Minister Romano Prodi prepared to raise concerns on the lack of progress at a Franco-Italian summit, and shortly after he challenged Air France KLM in a newspaper interview to take a clearer stand. "I have always supported contacts between the two groups. Now, I have a lot of doubts. I would like to know Air France's real intentions," Prodi told French daily Le Figaro.
Some French commercial aviation officials welcomed Prodi's comments as they eased their fears that Air France KLM would be pushed into a quick merger with Alitalia. Investors took the opposite view, however, driving Air France KLM shares lower and Alitalia shares upwards.
Air France KLM says it has always accepted the idea of a merger in principle, but will not do anything in practice until Alitalia has cleaned up its accounts and is free of what French officials regard as interference from its Italian state owner.
A diplomatic source said Prodi would look into whether the struggling Italian airline could strike a deal with Air France KLM at a summit with French President Jacques Chirac starting with dinner in the Italian town of Lucca later on Thursday.
Air France KLM meanwhile reported second-quarter operating profit up 7.8 percent to 568 million euros ($731 million) and hiked synergy targets from its 2004 Franco-Dutch airline merger.