PARIS - Air France-KLM said Thursday that profit rose 26 percent in its latest quarter, but shares of Europe's biggest airline tumbled after it announced tentative talks on a tie-up with Alitalia.

Chief Executive Jean-Cyril Spinetta said Air France-KLM had begun discussions on a possible combination with Italy's unprofitable state-controlled national airline, as his company posted net profit of 374 million euros ($482 million) for the July to September quarter, buoyed by strong passenger traffic.

That compares with 298 million euros in the year-earlier quarter, excluding a 419 million euros gain from the sale of a stake in the Amadeus flight booking system. When the sale proceeds are included in the year-earlier figure, however, quarterly net profit fell 48 percent.

Spinetta said the discussions with Alitalia would focus on the Italian airline's financial situation, the merger synergies possible and the compatibility of the two carriers' strategies.

''Only if we have positive answers to these three points will we open merger talks with Alitalia,'' he said.

Shares of Air France-KLM Group plunged as much as 8.2 percent, before recovering part of their losses to end at 30.14 euros ($38.84), 6.5 percent below Wednesday's close.

In a separate statement later in the day, the Franco-Dutch airline emphasized that the merger discussions had been initiated ''at Alitalia's request'' and were still at the stage of ''exploratory talks.''

Alitalia also played down the talks and suggested it was still open to other potential partners. Talks with Air France-KLM are ''still at an early stage and not exclusive,'' it said. Alitalia shares closed 2.2 percent lower at 0.92 euros ($1.19), having initially surged 5.2 percent on the disclosure.

Societe Generale downgraded Air France-KLM to ''hold'' from ''buy.'' In a note to investors, the bank said it saw risks to any tie-up with Alitalia, ''notably due to potential union resistance.''

Ever since Rome lobbied unsuccessfully for Alitalia to be included in the 2004 Air France-KLM merger, Spinetta has said he would consider a tie-up with the Italian carrier once it had restructured and returned to profit.

Even so, the timing of the discussions was ''puzzling,'' said Paris-based analyst Edmund Shing of Kepler Equities.

''It doesn't make sense and is not good,'' Shing said. Italy's national carrier ''is still not profitable and hasn't sorted out its problems.''

Alitalia has not turned a profit in four years and last week reported a third-quarter pretax loss of 65.8 million euros ($84.8 million).

The talks come amid consolidation moves across the industry. Last week, U.S. Airways Group Inc. made an $8.8 billion bid for Delta Air Lines Inc. Low-cost carrier Ryanair Holdings PLC has also made a 1.48 billion euros ($1.91 billion) bid for rival Irish carrier Aer Lingus, although the hostile offer is seen as unlikely to succeed.

Air France-KLM reiterated its previous full-year forecast of a ''significant rise'' in operating profit, declining to be more specific.

Revenue rose 8.8 percent to 6.13 billion euros ($7.9 billion) in the second quarter from 5.64 billion euros a year-earlier, outstripping a 7.8 percent increase in operating profit to 568 million euros ($732 million) from 527 million euros.

The airline's operating margin - operating profit as a share of revenue - fell to 9.26 percent from 9.35 percent. As previously announced, passenger traffic rose 5.2 percent in the quarter.