Air France-KLM and the ailing Italian flag carrier Alitalia have announced a “new strategic partnership” indicating an end to the long running saga of whether the Italian carrier would fold, which Italian Prime Minister Silvio Berlusconi promised wouldn’t happen. Subject to approvals by Alitalia shareholders and competition authorities, Air France-KLM would take a 25 percent stake and create joint ventures covering services between Italy, France and the Netherlands. The deal was announced on the same day Alitalia was officially relaunched after it combined with domestic rival Air One.

If approved, the Air France-KLM deal would remove uncertainty surrounding the future of Alitalia, a chronically money-losing airline that in 2008 came dangerously close to complete collapse, by shoring up the finances of the primary player in the commercial travel sector within Italy, a prominent locale in the global travel market. It also would keep Alitalia in the SkyTeam alliance and out of Lufthansa’s growing sphere of influence. Air France-KLM and Alitalia said they would create “a unique combination of hubs from north to southern Europe,” including Amsterdam Schiphol and Paris Charles de Gaulle airports in the existing Air France-KLM network and Alitalia operations at Rome Fiumicino and Milan Malpensa airports.

The partnership also would provide Air France a greater presence within Italy, following Alitalia’s consolidation with Air One. Both Alitalia and Air One had ownership transferred to investment consortia Compagnia Aerea Italiana. However, experts noted that closer ties between Alitalia and Air France-KLM could mean reduced competition, higher fares and less favorable discounts on routes between Italy and both France and the Netherlands. Now, Alitalia and Air France-KLM expect to generate within a few years 90 million Euro (USD 121 million) in annual synergies through the joint ventures, network optimisation and cooperative revenue management. As part of the transaction, Air France-KLM would gain three seats on Alitalia’s 19-member board and two seats on Alitalia’s nine-member executive committee.

The companies expect regulatory approval from “various competition authorities, including the European Union ... before the end of the first quarter of 2009,” they said. Air France-KLM might place a bid for SAS Group, local media reports indicated last week citing anonymous sources. Reportedly, the biggest airline group in Europe was studying the sales process that has been ongoing since mid-2008.