THE European Commission yesterday cleared the last instalment of a 20 billion franc (£2.45 billion) rescue plan for Air France.

However, the plan is still being challenged in court and European carriers say the French rival is undercutting fares.

European Transport Commissioner, Mr Neil Kinnock, defended the decision to allow payment of the final Ffr5 billion, saying the airline had accepted most of the conditions set in 1994 in return for allowing the cash injection.

He said the French Prime Minister, Mr Ala in Juppe, had pledged in a recent letter that Air France, would never again receive state aid.

Mr Juppe proposed placing one billion francs of the last tranche in a frozen account, pending review by March 1997 of progress in restructuring the airline.

"These decisions by the French government are a welcome response to the commission's concerns," Mr Kinnock told a news conference.

But he warned that if Air France's results in 1996 differed "significantly" from its forecasts or if other conditions or undertakings had not been respected it could re open its probe.

In March, Air France forecast a net loss of Ffr877 million for 1996 which the commission said was "very close" to a forecast in the 1994 restructuring plan of a Ffr724 million loss.

The commission also warned it would monitor closely other aspects of the plan such as staff reductions, capacity cuts and pricing practices.

But apart from a few problems, which were solved when the commission examined the progress of the airline's restructuring plan, the 1994 plan had run according to schedule, Mr Kinnock said.

He particularly shrugged off complaints by Germany's Lufthansa, KLM of the Netherlands and Scandinavian Airlines System (SAS) about alleged unfair pricing on 26 routes.

He said only five allegations were justified.