The French Government has for the first time shown hesitation over its privatisation programme, one of its key policies before June elections.

It will now wait at least six months before selling off a further stake in Air France, because of the weak stock markets and the impact a war on Iraq would have on the airline sector.

We have to sell Air France for what it's worth, not in the current aerospace climate, but when things look better in six months to a year

Francois Mer French Finance Minister

In late July, the centre-right government announced that it would cut its 54.4% stake in Air France to below 20% in what it described as its "privatisation starting line".

Shares were due to be sold at the end of the year or the start of 2003.

French Finance Minister Francis Mer said in a wide ranging interview at the weekend that the privatisation, including the sale of energy giants Electricite de France (EdF) and Gaz de France (GdF), would continue.

Mr Mer also said the sale of the remaining 9.5% stake in the Credit Lyonnais bank was being examined.

Take-off delayed

Mr Mer said on France's Radio Classique that Air France was worth more than its current share price and selling the carrier shares now would be unwise.

"We have to sell Air France for what it's worth, not in the current aerospace climate, but when things look better in six months to a year," he said.

"Given what's happening with developments regarding Iraq, I don't think air transport would be regarded as a particularly attractive stock market investment in the near term.

Earlier this month, Air France shares fell to a record low of 7.09 euros.

Power shock

Mr Mer, former head of the world's largest steel producer Arcelor, also said a European Commission ruling over state subsidies had complicated the sale of EdF.

The Commission announced on Wednesday that EdF must repay 900m euros in unfair state aid.

"The issue is perhaps important but it comes at a pretty bad time, and Commissioner Monti knows it, as we are in the process of setting the stage for EdF to become a company like others," Mr Mer said.

He said the government would continue with plans to sell a small stake in the company.

Phone call

Mr Mer also said France Telecom, the former monopoly in which the state still has a 55% stake, need a capital injection and that the government was working on a recovery plan.

It is estimated that the company, which has 70bn euros of debt, needs about 15bn euros.

New chairman Thierry Breton, who took over earlier this month from Michel Bon, is expected to announce a restructuring plan in December.

Mr Mer denied there would be an asset sell-off.