UPDATE 1-Italy asks state rail operator for help on Alitalia
(Adds further details and background)
ROME, Oct 7 (Reuters) - Italy's government has asked the state railway operator Ferrovie dello Stato to consider investing in loss-making national airline Alitalia, sources close to the matter said on Monday, as Rome explores alternatives to a takeover by rival Air France-KLM.
Air France-KLM said last week it was open to raising its 25 percent stake in Alitalia and possibly merging with its Italian rival. But a deal is being held up by disagreements over strategy and finances.
Alitalia has accumulated net losses of more than 840 million euros ($1.1 billion) and debts of about 1 billion euros since being rescued by a group of Italian investors and Air France in 2009, and is fast running out of cash.
But Alitalia shareholder and Deputy Chairman Salvatore Mancuso was quoted on Monday as saying that a takeover by Air France-KLM would imply tough conditions for Alitalia, including significant job cuts and a deep restructuring of its operations.
With the government desperate to limit big job losses, Il Messaggero newspaper said that Prime Minister Enrico Letta had approached Ferrovie dello Stato about saving the airline.
The government is holding a meeting on Monday afternoon to discuss financial support for the airline which is expected to include the railway operator's chief executive Mauro Moretti.
However, a tie-up bewteen the rail firm and Alitalia would raise competition issues, Innocenzo Cipolletta, chairman of a state-sponsored private equity fund, told an Italian newspaper on Monday.
Alitalia and FS currently compete on the lucrative Milan-Rome route.
A merger with Air France is seen by some industry analysts as the best solution for Alitalia but sources familiar with the matter said disagreements remain over financial commitments and how Air France might want to adapt Alitalia's operations to serve its existing network.
The Italian government has expressed concern about the tertiary role that Rome's Fiumicino airport might play in the overall strategy of the merged carrier.
"I don't like what Air France would like to do with Alitalia - reduce Fiumicino to their third hub (after Paris and Amsterdam)," Mancuso told Il Messaggero. And that might result in "the loss of thousands of jobs, erasing Italy's name from the main routes and preventing Alitalia from growing in Africa," he added.
Mancuso's Equinox fund owns 3.8 percent of Alitalia.
Alitalia, which was acquired by a group of Italian investors and Air France-KLM when it went bankrupt in 2008, is one of several big Italian corporate names facing a possible foreign takeover, including Telecom Italia.
On Friday industrial and defence group Finmeccanica agreed to sell its power engineering unit Ansaldo Energia to an Italian state-backed fund, after opposition from politicians and trade unions derailed foreign takeover attempts.
(Editing by Greg Mahlich)