Rome: Alitalia's board on Sunday approved a takeover offer put forth by Air France-KLM. The offer places a very low value on cash strapped Italian airline, and the takeover is seen as critical to Alitalia's survival.

Alitalia's press release on its website said that its board had unanimously decided to accept Air France-KLM's offer and ''execute the agreement.'' 

Air France-KLM itself was born out of the French airline taking over the Dutch KLM in May 2004. It now forms Europe's largest airline, employing 103,000 people with a a fleet of around 582 airliners flying to 240 destinations.

On Friday, Air France – KLM had unveiled its formal bid for Alitalia, saying that the offer would hinge on union support. Other preconditions to the deal include the government's commitment to giving up its 49.9 per cent stake in the airline as well, along with an 'elimination' of risks arising out of litigation from Milan airport operator SEA, which is asking for €1.25 billion in damages on account of Alitalia's decision to scale back operations at the Malpensa airport. SEA is 84.6-per cent owned by the City of Milan.

The issue will most definitely be highly politicised, given the governments' just-less-than-half holding in the airline, and the fact that one of the biggest litigant against the airline is also owned by the City of Milan. Moreover, it comes at a time when a new Italian government will come to office from elections on 13 and 14 April. Alitalia's unions CGIL and pilot's union Anpac have already attacked the takeover bid, calling it an unconditional surrender.

Air France-KLM's offer for Alitalia values a single share at €0.10, way below its quoted value of €0.53 as of Friday, which adds up to a discount of around 81 per cent on the record low price at Friday's close.

Air France-KLM is offering one share for every 160 shares of Alitalia, by way of which the deal totals €138 million. When negotiations between the Italian airline and the Franco-Dutch airline commenced around three months ago, the price on offer was around €0.35. The current offer price is the result of the share's value taking a nose dive since then, as Alitalia hovered near bankruptcy.

Alitalia's statement also said that the company accepted a public cash tender offer on 100 per cent on Alitalia's convertible bonds at a unit price of €0.3145, equal to the market price as of the 14 March 2008, totalling €608 million. The board's statement also said that the contract conditions need to be validated by 31 March 2008, after which it would be applicable, and the new Alitalia would keep "its Italian identity" and retain its own brand and logo.

The statement projects a loss of 1,600 jobs of the 11,000 in the Italian group. Alitalia is expected to check with Italy's economy ministry about the deal. Air France-KLM have guaranteed an increase in Alitalia's capital of €1 billion upon completion of the deal.

The press note says that within the new industrial set up, Alitalia will continue to benefit from the global alliance SkyTeam, will provide a wide range of services in the best interest of its customers, and will acquire certain activities currently carried out by Alitalia Servizi. Similarly to Air France and KLM, Alitalia, in addition to retaining its Italian identity, will keep its own brand, livery and logo which will develop alongside with the products of the enlarged Group.

In addition, the Board of Directors has also approved a new three year plan, termed the ''Industrial Plan 2008-2010'', which for Air France-KLM is an essential requisite to the realization of the integration project. The Industrial Plan 2008-2010, an evolution of the Plan for Survival / Transition as approved in September 2007, envisages an initial restructuring phase followed by a phase of re-launch and development from 2010 through the renewal of the fleet.

The Industrial Plan 2008-2010, prepared on a stand alone basis, assumes a relevant economic turn around, with a positive operating margin in 2010. The synergies arising from the integration with the Air France-KLM Group will allow the Company to improve the plan operating results and, in the medium-long term, to achieve EBITDAR and EBIT margins in line with those of the main European carriers.