Air France-KLM, the largest airline in the world by sales, dropped its 138 million euro ($220 million) bid for Italy's flagship carrier Alitalia on Monday, following failed talks with union leaders and uncertainty about the Italian government's position regarding the sale.

The lost bid deals a blow to an effort to find a partner for Alitalia which is losing more than 1 million euros per day, risks bankruptcy and has warned that it needs to merge with another carrier or raise additional capital to remain afloat.

The French-Dutch airline said Monday that certain conditions to move forward with the deal were not met. It had previously said it needed to get union and government approval.

However both those requirements were compromised when talks with unions were suspended at the beginning of April. Air-France-KLM said at the time it could not meet new union demands.

In addition, the bid has faced political controversy in its exclusive negotiations with the government, which owns 49.9 percent of the airline. The airline had been in talks with officials but elections on April 13 and 14 threatened to change the nature of the talks.

In March then-candidate for Prime Minister Silvio Berlusconi said on the campaign trail that the Air-France-KLM bid had been humiliating and promised to find Italian investors for a new deal.

After being elected last week, however, Berlusconi has backed off after no Italian bidders emerged, saying adding he is open to more negotiations.

Air-France-KLM said in a statement today that after requesting Alitalia to clarify the legal situation regarding the suspension, it had dropped the bid.

Air France-KLM has indicated to Alitalia that the contractual arrangements announced on 14th March with a view to launching a public exchange offer on Alitalia were no longer valid; the conditions precedent that had to be satisfied prior to launching were not fulfilled, the airline said in a statement.

The failed bid comes as the 18,000 employee Alitalia deals with a difficult financial situation. It has said that it would need to raise 750 million euros ($1.2 billion) by the middle of the year to stay in operation.

The Air-France-KLM bid had called for Alitalia to cut more than 2,000 jobs, eliminate its cargo business and shift some of its operations to Rome.