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Delayed Aigle Azur liquidation leaves time for Air France rescue

An Airbus A320 aircraft, operated by Aigle Azur, lands at Orly Airport near Paris

PARIS (Reuters) - A French court began the process of liquidating insolvent airline Aigle Azur on Monday but left bidders including Air France-KLM <AIRF.PA> and Air Caraibes two more days to come back with an acceptable rescue plan, the CFDT union said.

The Evry commercial court south of Paris ordered Aigle Azur's liquidation under a "going concern" process that leaves more time before assets are sold off, setting a midnight deadline on Wednesday for bidders to improve their offers, the union said in a statement.

Air France declined to comment. Low-cost rival easyJet <EZJ.L>, which had tabled its own proposal last week, said on Monday it had submitted only an "expression of interest" in Aigle Azur medium-haul operations based at Paris Orly.

Higher fuel costs and stiffer low-cost competition have led to a recent wave of bankruptcies among smaller European airlines including Air Berlin, Germania, British-based Monarch, Latvia's Primera Air and Swiss SkyWork.

Privately held Aigle Azur was put under bankruptcy protection on Sept. 2 and halted operations days later, leaving 19,000 passengers stranded.

Air France, which submitted an initial proposal last week, has agreed to combine its bid with Air Caraibes parent Dubreuil group, two sources told Reuters earlier. Monday's decision buys time for the resubmission of a joint plan.

Air France wants to buy Aigle Azur's medium-haul business serving Algeria and the surrounding region, along with valuable take-off and landing slots at Paris Orly, while Air Caraibes bid for the long-haul operations to destinations including Brazil.

A third offer led by a former head of Air France's Hop! unit has been withdrawn, people with knowledge of the process said.

Aigle Azur's debts were established at 148 million euros ($163 million) during Monday's hearing, more than previously estimated, the CFDT said. Unless the court receives a satisfactory offer by the Wednesday deadline, the carrier's liquidation will proceed from Sept. 27.

The CFDT and CFTC unions together representing a majority of Aigle Azur's 800 French staff have also offered to renegotiate contracts with Air France and Air Caraibes, a move they say would help to avoid liquidation and secure the Orly slots.

Shares in Air France-KLM closed 3.2% lower on Monday before the court ruling. The stock had fallen sharply on last week's bid confirmation, amid concern about pressure from the French government, which owns 14.3% of the Franco-Dutch airline group.

(Reporting by Laurence Frost; editing by David Evans)