Air France-KLM looked poised on Monday to make a key step towards buying struggling Italian carrier Alitalia, ending the 62-year independence of one Italy's most distinctive global brands.

The Franco-Dutch airline's board met on Monday to make the final preparations for what was expected to be a long-awaited binding offer for the Italian national airline, whose future has become a hotly contested issue in upcoming Italian elections.

"There should be a statement (later on Monday)," a source close to the matter said, asking not to be named.

French newspaper La Tribune reported on its website that the board had agreed to make a formal offer but only subject to certain conditions targeted at strike-prone Alitalia's unions.

Air France-KLM wants the unions to guarantee in writing that they will not obstruct the redundancies envisaged as part of the takeover, the newspaper said without giving sources. Reports say 1,000 to 2,000 jobs could go at the troubled airline.

Air France-KLM was not available for comment.

For decades Alitalia symbolised the post-war success of one of the world's most visited countries, as aircraft sporting its A-shaped logo transported Popes and divas around the globe.

Now Italy's national airline is on sale to avoid bankruptcy, torn apart by political interference and five years of losses.

It urgently needs a buyer to avoid running out of cash after the European Union banned further state aid.

Air France-KLM entered exclusive negotiations late last year after snubbing an earlier Italian government auction for the 49.9 percent of the airline held by the Italian state, saying the rules were too restrictive.

But lured by the thriving north Italian business market, it relented and began refining a business plan with Alitalia with a target of reaching a decision by mid-March.

Air France-KLM's investors however fear it will become bogged down in Italian politics, echoing the fate of previous high-profile Franco-Italian industrial deals in energy.

Air France-KLM shares fell 4.4 percent to 15.732 euros. They have underperformed European rivals Lufthansa and British Airways by 18 percent and 16 percent this year respectively. Alitalia's stock, which once soared above 25 euros, slipped 1.4 percent to 0.5863 euros.

ITALIAN POLITICS

Complicating the talks, Italian Prime Minister Romano Prodi, who backs the merger, resigned in January. The move triggered an election due in April, weeks after the deadline for a deal.

Last week Silvio Berlusconi, the centre-right candidate for prime minister who leads in opinion polls, rattled Alitalia shares lower when he said he opposed the Air France-KLM deal.

Berlusconi later toned down his opposition but said he still prefers an Italian solution and the fate of the preferred carrier for Papal trips has become an emotional election issue.

Many politicians saw Alitalia should remain Italian.

Italy's administrative Appeals Court is due to hear an appeal on Tuesday by domestic Italian rival Air One which hopes to put an end to the talks between Paris and Rome.

Air France-KLM is the world's largest airline by revenues but looks set to lose that crown as Northwest Airlines and Delta Air Lines edge towards a merger deal in the United States. The deal hinges partly on talks with pilots.

A three-way tie-up between France, Netherlands and Italy would consolidate Air France-KLM's position as the largest airline in Europe at a time when network carriers are under pressure from low-cost competition and high oil prices.

It could also be the last major move under Air France-KLM Chairman and Chief Executive Jean-Cyril Spinetta, who steered Air France from a sleepy state-owned airline to profitable carrier in the blue-chip CAC40 worth 5 billion euros.

Alitalia has a market value of just 820 million euros.

French newspaper Le Figaro reported at the weekend that Spinetta intended to quit as chief executive after 10 years in October when he becomes 65 years old, but stay as chairman.