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joins in auction for Alitalia

· Russian airline's offer takes markets aback
· Doubts that Italian flag carrier can turn a profit

Aeroflot yesterday took the markets aback when it emerged as the mystery partner in a bid to take control of Italy's national airline, Alitalia.

The idea that the legendarily rough-and-ready Russian carrier might hold the key to a turnaround for the embattled Italian group takes some crediting - and will doubtless be seen in Italy as a dreadful blow to its national industrial pride. But, in Moscow, Aeroflot's deputy chief executive, Lev Koshlyakov told Reuters: "Talks on the issue have taken place. We've made an offer". Aeroflot turned out to be the previously undisclosed client of Unicredit, Italy's largest bank by market capitalisation. Until yesterday, speculation had centred on Air France-KLM which, like both Alitalia and Aeroflot, is a member of the Sky Team alliance.

The Franco-Dutch airline has long been seen as the most likely final buyer of Alitalia. But it has insisted it will not buy in until the Italian carrier is in better shape.

The Aeroflot-Unicredit consortium is among only three remaining in the field. Yesterday, the Italian finance ministry announced that the US asset management group Matlin Patterson and the American private equity fund Texas Pacific were pooling their bids and linking up with the Italian merchant bank, Mediobanca.

The US group is widely thought to be aiming to turn around Alitalia before selling it on to another European airline - either Air France-KLM or Lufthansa. Despite repeated denials by the German operator, some analysts believe it has a potential role in the third remaining bid, by AP Holding. This is a vehicle for Carlo Toto, the head of Air One, Italy's second airline, which has a code-sharing deal with Lufthansa.

Five bidders had entered the current phase of the sale, but a consortium led by Carlo De Benedetti's turnaround fund Management & Capitali fell out last Friday, saying the conditions were not right to begin due diligence. M&C did not withdraw completely, however, and under the distinctly flexible rules operated by the finance ministry it could submit a non-binding offer before the April 16 deadline.

Shares in Alitalia were yesterday suspended at €0.99 (67p) on the Milan bourse pending the final bidders' list.

Aeroflot is by far the biggest partner in its consortium, with a stake of 95% A Unicredit executive said the bank would put up only 5% of any final offer. The Russian airline turned a profit last year of more than $280m (£142m)and has a market value almost twice that of Alitalia.

The key question hanging over the sale is whether any of the bidders can find a way of returning Alitalia to profit while respecting the conditions imposed on it by the Italian government. The airline is not exactly an alluring prospect.

Alitalia revealed earlier this year that it had lost more than €1m a day in 2006. But the government is insisting that the new owner must retain the company's Italian identity for at least eight years, a stipulation that has been taken to mean that it must continue to run loss-making domestic routes. The government has a 49.9% stake in the airline and is seeking bids for at least 39.9%, which would automatically trigger a full bid under Italian law.

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