Step 1: Understanding Krebs cycle.
Krebs cycle is a cyclic series of enzyme-controlled reactions involved in aerobic respiration. Step 2: Formation of $\alpha$-ketoglutarate.
Isocitrate is first oxidized to oxalosuccinate.
Oxalosuccinate then undergoes decarboxylation to form $\alpha$-ketoglutarate. Step 3: Identifying the correct process.
The key step forming $\alpha$-ketoglutarate is decarboxylation of oxalosuccinate. Step 4: Conclusion.
Hence, $\alpha$-ketoglutarate is formed by decarboxylation of oxalosuccinate.