Air France-KLM Group, the world’s largest airline by sales, agreed to buy Alitalia SpA in a bid valued at $1.2 billion as part of the Italian government’s plan to save the unprofitable carrier from bankruptcy.

Air France-KLM will swap one of its shares for every 160 of Alitalia’s, valuing the Italian airline at 139 million euros, or 10 cents a share, Air France said. That’s 81% less than the closing price March 14. Air France offered 608 million euros for the carrier’s convertible bonds. Alitalia’s board accepted the bid after a 12-hour meeting yesterday in Rome.

In buying Alitalia, Air France-KLM wins access to one of Europe’s biggest passenger markets, while inheriting an airline that hasn’t earned an operating profit in almost a decade and loses more than a million euros a day. The agreement may face opposition from unions concerned about layoffs and still needs backing of the government, which will change next month after early elections. “In the short term the purchase may hurt profitability, but Alitalia will bring significant leverage with the opening of new hubs in Italy,” a manager of 110 million euros at Paris-based Roche-Brune SAS, Alexandre Hezez, said. Mr. Hezez spoke in a Bloomberg Television interview before Air France gave details of the offer.

Air France also plans to sell 1 billion euros of new Alitalia shares to fund “the commercial re-launch” of the airline. Italy also agreed to an emergency credit line to help the airline stay in business. The three-year business plan agreed to by Air France will scale back unprofitable routes, cut 1,600 workers, or almost 15% of the Rome-based carrier’s staff, and trim the size of Alitalia’s fleet in a bid to restore operating profit by 2009.

The airlines didn’t give details on the fate of the 8,000 workers at Alitalia’s ground service and maintenance unit, a point of contention with unions.