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Air France KLM plans to revive Alitalia through a sizable capital infusion and list the combined group in Milan as well, the French carrier's CEO said during a visit to Rome to drum up local support for its bid.

But Air France has yet to decide whether to take over loss-making Alitalia's services and maintenance unit AZ Servizi, which is run as a separate company, CEO Jean- Cyril Spinetta told reporters in Rome.

Air France received the green light at the end of last year to start exclusive talks to buy Alitalia, but faces hostility from unions and some politicians who fear job losses, mainly at its Milan hub and at the troubled AZ Servizi unit.

Alitalia's chairman had been pushing Air France to consider buying AZ Servizi as well. If it did, the Italian state would end up with a 5 percent stake in the combined company, the UGL union said earlier on Wednesday.

The Italian government, which owns a 49.9 percent stake in Alitalia, had been expected to own a 3 percent stake in the new group after the share-swap deal was completed.

Spinetta played that down, saying it was impossible to say how much the Italian state would own in the combined company.

A decision on AZ Servizi -- which is state-controlled and in which Alitalia has a 51 percent stake -- would be taken based on «economic and social» considerations, he said.

Spinetta also defended plans to scale down Alitalia's presence at its Milan Malpensa hub, which has set off a firestorm of protests from unions and politicians in northern Italy who are lobbying hard against the plans.

«The big majority of Alitalia's losses come from Malpensa,» Spinetta said, adding that the hub would not be abandoned altogether. «Continuing to ignore this fact would bring about the end of Alitalia.»

He also confirmed Air France-KLM would cut 1,700 jobs. If it succeeded in buying up all of Alitalia shares, the combined Air France-KLM-Alitalia group would be listed on the Milan bourse in addition to its existing listings in Paris, Amsterdam and New York, he said.

Spinetta earlier on Wednesday met Alitalia Chairman Maurizio Prato and Economy Minister Tommaso Padoa-Schioppa, whose ministry oversees privatizations of state assets.

He said he had also wanted to meet Italian Prime Minister Romano Prodi, but that the premier did not want to meet him until a final decision on the sale was taken.

The eight weeks of exclusive talks will formally start at the end of this week or early next week when a letter announcing it is sent, Spinetta said.

The French carrier's CEO also met representatives of the UGL union, the first of several key meetings he is expected to have to win their backing. Analysts say getting Alitalia's strike-prone unions on board will be key to closing a deal.

Three other major Alitalia unions did not meet Spinetta on Wednesday, but instead wrote to Italian Prime Minister Romano Prodi seeking an urgent meeting to discuss the airline's sale.

(Reuters)