Air France-KLM is in pole position to buy Alitalia, the loss-making airline, after Lufthansa decided not to bid for the Italian carrier.

Lufthansa was expected to join Air France-KLM and the Italian airline Air One in making an offer for the part state-owned Alitalia yesterday. However, the German airline surprised the market by saying that it would not be bidding. It feared losing its investment-grade rating if it took on Alitalia’s liabilities.

Shares in Air France-KLM closed up 2.36 per cent at €23.81 on the news of Lufthansa’s decision, as fears of a fierce bidding war between the French and German flag-carriers evaporated.

Air France-KLM already has a cross-shareholding and a commercial alliance with Alitalia, making it a front-runner in the competition, which has been marred by a series of false starts. The deadline for bids ended at midday yesterday, with analysts already suggesting that Air France-KLM could probably negotiate attractive financial terms for the struggling airline as its rival in the auction, Air One, is a significantly smaller low-cost operator. Alitalia said it would release the exact number and names of bids after a board meeting today.

The Italian Government’s attempt to auction its 49.9 per cent stake in the airline stalled in July after it set stringent conditions around the sale of the airline, which deterred buyers.

Air France-KLM refused to take part in the earlier bidding process because of concerns at Alitalia’s willingness to restructure to stem losses and has emphasised that it will not do a deal that harms its own profitability.

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