Alitalia shares were sharply down after reports that Air France-KLM would not make a bid for the ailing airline because of the high asking price and the stringent conditions set by the Italian government.

In mid-afternoon trading Monday Alitalia was down 2.73 percent at 1.03 euros on the SP/Mib exchange in Milan.

The Italian government, which holds a 49.9 percent stake in the company, is seeking to privatize Alitalia and bids have to be presented by January 29.

Last week, the resignation of Air France chairman Jean-Cyrill Spinetta, who represented the French carrier on Alitalia's board, fuelled speculation that Air France would make an offer for the Italian airline in which it already has a two-percent stake and a code-sharing alliance.

But the French daily La Tribune reported Monday that the Franco-Dutch carrier has decided not to make an offer because of the high asking price -- 1.5 billion euros (1.9 billion dollars) excluding debt -- and conditions set by the Italian government.

It said Air France might revise its position if there were no other offers or if "events contrary to its interests occur this week," such as an offer from Germany's Lufthansa or Italy's Air One.

Air France-KLM, which has always insisted that any tie-up would be conditional on a restructuring at the Italian carrier, declined to comment on the La Tribune report.

Other possible bidders include investment fund Management and Capitali, created by businessman Carlo De Benedetti, which said it is studying the possibility of investing in Alitalia along with other parties.

According to press reports a consortium headed by Rothschild Bank has also expressed interest in Alitalia.