Air France KLM, under pressure from Rome to commit to a merger with Alitalia, announced exploratory talks with the ailing carrier today but reaffirmed conditions for a deal.
Chief eecutive 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 per cent at €30 by 10.35am, while Alitalia shares were up 2.8 per cent at €0.9685 after rising more than 4 per cent earlier today.
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," Mr Prodi told French daily Le Figaro.
"Does it want to create a big European air transport group in which Italy has also its place, or simply to grab the Italian air transport market, which is big and very rich?" Mr Prodi added.
Some French commercial aviation officials welcomed Mr 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.