PARIS (Reuters) -Air France-KLM is in talks to take a stake in Spanish airline Air Europa and is looking to boost its existing holding in Scandinavian carrier SAS to a majority, CEO Ben Smith told Reuters on Tuesday.

"We've had a meeting with Air Europa," Smith told Reuters in an interview in Paris, confirming for the first time the French-Dutch carrier was interested in buying a stake.

He added that it was also on track to increase its stake in SAS as the carrier was meeting the necessary milestones, including integration into the SkyTeam airline alliance, of which Air France-KLM is also a member.

Smith declined to disclose further details about the nature of the Air Europa talks, or the size of either planned stake.

In November, the airline said discussions were underway about commercial cooperation with Air Europa within the framework of the SkyTeam alliance, but it would not comment on any plans to acquire a stake.

Some analysts have valued the airline at up to 1 billion euros ($1.1 billion). The stake sale would be aimed at raising funds to pay back government loans worth about 475 million euros granted during the pandemic.

German airline group Lufthansa is also interested in acquiring a minority stake.

The stake sale would mark the next phase of the consolidation of Europe's fragmented airline industry, which executives say is needed to compete with U.S. and Middle Eastern rivals.

Doing smaller deals rather than buying an airline outright would also help get regulatory approval and expand Air France's business in the lucrative southern European market. Air Europa flies within Spain and between Madrid and large cities in Europe and Latin America.

PATH TO MAJORITY

Smith said that while the group was open to negotiating smaller stakes in potential takeover targets, the ultimate goal was full integration into the Air France-KLM group.

In talks with smaller airlines, the company wants "a clear path" to majority ownership, he told Reuters. "That's a must for us."

That has been a struggle to date with Air Europa. In August last year, British Airways-owner IAG abandoned a plan for a full takeover of the airline after hefty regulatory scrutiny from the European antitrust watchdog.

Analysts say Air France-KLM could stand a better chance getting past regulatory scrutiny given its smaller existing footprint in southern Europe.

European regulators are worried major takeovers will lead to higher air fares and hit consumers. IAG bought a 20% stake in the airline for 100 million euros in 2022.

Smith said Air France-KLM was also still interested in the privatisation of Portuguese flag carrier TAP, but was waiting on further guidance from the Portuguese government.

"We like that geography. We think it can really help better position our group in terms of our competitors, but we're not going to pursue the consolidation operation just for the sake of enlarging," Smith said.

He added that Air France-KLM would be interested in "one of the two airlines" and that they were "waiting anxiously" to see what the TAP process might look like.

Lufthansa and IAG have also shown interest in TAP's privatisation, which the Portuguese government has said it wants to carry out this year.

($1 = 0.9162 euros)