The Swiss cabinet has given the green light to a planned takeover of Swiss International Air Lines by Germany's Lufthansa, clearing the way for their boards to ratify the deal, sources close to the talks said on Tuesday.
The two companies' boards were meeting on Tuesday afternoon to hammer out details of the deal, which one source said was "definitely" expected to be announced later in the day.
The government is the Swiss airline's single largest shareholder with a stake of around 20 percent.
Lufthansa's supervisory board had been due to start meeting around midday (1100 GMT), and an announcement would be made after the market closes, sources close to the deal said.
Under the plan, Lufthansa will offer to buy out the 14 percent of Swiss shares that are owned by small investors at a price based on recent trading, or about CHF66 million Swiss francs (USD$56 million), sources close to the deal have said.
The German carrier will then set up a holding company along with Swiss's major shareholders to allow Lufthansa to gain up to 49 percent control, the sources have said. It wants to integrate Swiss into its 2005/06 winter timetable.
The Swiss airline's other major shareholders include the government of the canton of Zurich, banks Credit Suisse and UBS, and car import and dealership group AMAG. A raft of other Swiss companies have smaller stakes.
The Zurich cantonal government was due to make its decision later this afternoon, a source said.
Key figures in Berne have indicated they are in favor of the sale of a stake, with Finance Minister Hans-Rudolf Merz recommending that Swiss talk to Lufthansa and Justice Minister Christoph Blocher arguing the state should not hold a stake in an airline.
Air France and KLM also used a holding company structure to allow them to merge yet maintain separate operations and brands and to protect their respective foreign landing rights.
Pending negotiations over landing rights, Lufthansa aims to take control of the remaining 51 percent within 12 to 18 months.
Recent opinion polls in Switzerland showed that the majority of Swiss people and parliamentarians back Lufthansa's plan, despite some misgivings in the popular press about selling out the national flag carrier to their northern neighbors.
Swiss, still battling to cut costs to stem losses, said on Monday it had reached a new collective labor agreement with ground staff unions, which will take effect on April 1.
