UPDATE 1-Germany's Lufthansa is set to buy 40% stake in Alitalia's successor ITA - paper

(Adds Lufthansa and German government comments, background)

MILAN, Jan 22 (Reuters) - Germany's Lufthansa is
set to buy a 40% stake in state-owned Alitalia's successor ITA
Airways and a deal could be unveiled next week, Italian daily Il
Foglio reported on Saturday.

ITA Airways started flying on Oct. 15 with nearly 2,300
employees and a fleet less than half the size of that operated
by Alitalia, the 75-year old former national carrier which
passed through a dizzying succession of restructurings and
changes of ownership.

The newspaper did not give a price for any deal, but said
the two companies were very close to agreeing over some key
terms, such as the role of Rome's Fiumicino airport as a hub for
direct flights to Africa and some routes to the Americas.

An ITA spokesperson said on Saturday that the airline's top
management would present a strategic plan to the company's board
on Jan. 31. A data room would be opened in the following days,
he added, allowing a potential bidder or partner to have access
to key financial documents to assess the value of the company.

Lufthansa declined to comment.

The report comes after sources told Reuters on Jan. 12 that
ITA was in contact with Lufthansa, British Airways and
United States-based Delta Air Lines for an equity
partnership, saying that formal talks could start by the end of
March.

A Lufthansa spokesperson said at that time that the German
carrier was open to the possibility of a partnership with ITA.

Delta denied it planned to invest in ITA.

The German government currently holds 14% of Lufthansa
shares following a bailout at the height of the coronavirus
pandemic in 2020 and aims to sell its stake by October 2023 at
the latest.

The group was saved from bankruptcy by Germany, Switzerland,
Austria and Belgium with 9 billion euros ($10.21 billion) in
financial support approved by the European Commission.

A German economy ministry spokesperson declined to comment
on the Italian newspaper report.

A deal with ITA would be subject to a European Union
competition approval, Il Foglio said.
($1 = 0.8818 euros)
(Reporting by Gianluca Semeraro; Additional reporting by
Michael Nienaber and Ilona Wissenbach in Frankfurt; editing by
Louise Heavens and Clelia Oziel)