* Air France-KLM reaffirms its interest in TAP

* Staying out of TAP's management could be the key

* Portugal wants a partner with local identity

*

by Joanna Plucinska and Sergio Goncalves

LONDON/LISBON, October 6 (Reuters) - Air France-KLM's acquisition of a stake in Scandinavian airline SAS gives a foretaste of how the Franco-Dutch group will approach the highly competitive takeover of Portuguese carrier TAP.

The Portuguese government said last Thursday that it planned to sell at least 51% of the shares in national carrier TAP after the legal framework for the privatization process had been approved.

As Europe's national carriers struggle to compete with low-cost carriers like Ryanair and Wizz Air, major groups like Lufthansa, Air France-KLM and IAG are stepping in to carry out restructuring and try to save them.

Tuesday's SAS deal, which brought in US investment firm Castlelake and Air France-KLM as the new main shareholders alongside the Danish state, was a long-awaited shake-up for a historic European brand.

Air France-KLM only takes a 19.9% stake, and its influence on the group, which has struggled with the fragmentation of its Danish and Swedish hubs, could be limited.

This cautious approach could, however, attract the interest of TAP.

Air France-KLM has tended to let the airlines it invests in retain their operations and brand image. Thus, since the 2004 merger between Air France and KLM, both airlines still fly under their own colors, and many activities remain separate.

Germany's Lufthansa and Spain's IAG, other likely competitors in the battle to take over TAP, tend to thoroughly restructure the airlines they buy, streamlining business practices and branding.

"(Air France-KLM's) promises to keep the brand alive, keep the brand separate and keep operations in Portugal and connections in Portugal" will play an important role, says aviation analyst James Halstead.

BRAND IMAGE

Analysts see the SAS deal as a success for Air France-KLM, which has managed to wrest an airline from Lufthansa's sphere of influence in Northern Europe and from the Star Alliance airline grouping.

Air France-KLM is trying to repeat the feat with Star Alliance member TAP, but faces a higher price and fierce competition.

The group said on Thursday that its acquisition of a stake in SAS does not alter its interest or ability to participate in the TAP participation process.

The Portuguese government is looking for a partner to save its ailing airline without losing its brand image, local hubs and Portuguese identity.

According to analysts and investors, allowing free management of the brand could be the key to capturing TAP's lucrative routes to South America.

TAP wants to protect its "integrity", and Air France-KLM seems to be the best partner for this, according to one investor. Air France-KLM will now be able to use its investment in SAS as an argument.

"The actual work of understanding which airlines are really interested, the real appetite of the market and the strategies of the various players has not yet begun", says a source close to the matter.

A LONG BATTLE AHEAD

Air France-KLM's acquisition of a stake in SAS is still subject to a number of regulatory hurdles, including the approval of U.S. and European political leaders. A setback could slow down negotiations for TAP.

U.S. private equity giant Apollo Global Management, which last year provided SAS with $700 million (€663.36 million) in bridge financing and had bid to take a majority stake in the company, has run up against the European Union's ban on non-European investors taking control of an airline.

Historically, the European airline industry has faced cultural and political obstacles that have complicated the integration of new players, even within Air France-KLM. It remains to be seen how Air France-KLM will cope with Swedish and Danish cultures.

Lufthansa and IAG will also have arguments to put forward. The former will be able to point to its participation in the Star Alliance, of which TAP is a member, while the latter could be tempted by its presence in the Iberian region.

Portugal will be looking for a "reputable and strong" buyer, according to a source familiar with the government's position, who will also be ready to participate in the improvement of Portuguese airports. (Joanna Plucinska and Sergio Goncalves, with contributions from Jacob Gronholt-Pedersen and Tim Hepher; French version Victor Goury-Laffont, edited by Blandine Hénault)