Air France-KLM Chief Warns Alitalia deal at Risk

Air France-KLM's chief said its takeover of Alitalia was in danger of falling apart as unions, politicians and a $2 billion lawsuit raised hurdles to a deal seen as saving the ailing carrier from bankruptcy.

Italy's economy minister overseeing the sale said the government may be forced to take charge and appoint an official to run the state-controlled airline, which says it has only months to go before its cash runs out.

"Yes, it's true, the deal is at risk. But I still have hope," Ansa news agency quoted Jean-Cyril Spinetta, CEO of the world's biggest airline by sales, as saying in Rome where he has been meeting Alitalia management and trade unions.

Spinetta and his counterpart at Alitalia, Maurizio Prato, were seen entering the Italian Prime Minister's office on Wednesday. The carriers called a meeting with the airline's unions on Thursday, after a first round of talks on Tuesday ended in stalemate with neither side willing to concede ground.

Spinetta, who told the unions his airline was not obliged to buy Alitalia, will also hold a news conference at 1500 GMT.

Air France-KLM has set March 31 as the date by which all obstacles to a deal -- including opposition from unions and the lawsuit by Milan's airport operator -- must be resolved.

Alitalia shares fell 30 percent when trading resumed after suspension on Wednesday.

They were down 15 percent to 23 euro cents a share in afternoon trade, having shed more than half their value since the deal was announced on Sunday.

The deal is unraveling as plans to cut more than a third of the airline's 19,000 workforce and a much lower than expected $218 million price tag prompted fierce criticism from unions and from politicians mindful Italy holds an election next month.

The EU's transport commissioner, however, said the deal appeared to be based on competitive and commercial reasons.

There are also legal hurdles, with Italy's economy minister urging SEA, the company that operates Milan's Malpensa airport, to drop a $2 billion lawsuit against Alitalia over plans to halve flights out of Malpensa as part of the planned deal.

"The only possible way to solve the issue is that SEA drops the lawsuit or accepts a symbolic agreement," Economy Minister Tommaso Padoa-Schioppa, part of the outgoing government  that launched the sale, said in a newspaper interview.

Italy's main opposition bloc, led by media magnate Silvio Berlusconi -- who is leading in opinion polls before the April vote -- has also opposed the deal, which will require the blessing of the newly elected government as well.

Sick Patient

"I am driving an ambulance to take a sick patient to hospital," Padoa-Schioppa told Corriere della Sera. "I am driving as fast as possible but I might not get there in time because all the traffic lights are red." He later raised the possibility of appointing a commissioner to run Alitalia at a Wednesday cabinet meeting, fellow minister Paolo Ferrero, who attended the meeting, told reporters.

SEA said it would consider an out-of-court settlement if it was paid damages. Being protected from any risk from the lawsuit is one of Air France-KLM's conditions for its bid, which also has an offer for bonds and a 1 billion euro capital hike.

The deal, agreed with management and the government earlier this week, values Alitalia shares at just 10 euro cents each -- less than a fifth of its market value before it was struck.

Padao-Schioppa said SEA's hostility to the deal with Air France-KLM was a more difficult  problem to solve than opposition from the unions, which have an interest in saving Alitalia.

Air One, the smaller domestic player whose bid of 1 euro cent per share for Alitalia was snubbed by the government, which holds a 49.9 percent stake in the carrier, has not commented.

"If the Air France-KLM deal falls apart, Alitalia will be in a desperate situation," said Frost & Sullivan aviation consultant Diogenis Papiomytis.

"There is the risk of bankruptcy if something then does not happen with Air One, and happen very quickly."

Copyright 2009 Reuters. Click for restrictions.