Italy Scrambles to Keep Alitalia Flying


The Italian government held emergency talks on Tuesday in a bid to keep Alitalia flying after Air France-KLM torpedoed hopes of reviving its failed takeover of the ailing Italian carrier.

Air France-KLM's deal to buy Alitalia collapsed earlier this month in the face of union opposition, and the French carrier formally withdrew its offer on Monday in its strongest signal yet that it has little intention of resuming to talks.

Analysts had considered the deal Alitalia's most viable option of avoiding bankruptcy, despite speculation of a rival bid by an Italian consortium or Russian airline Aeroflot.

The carrier has cash left for only weeks or a few months at most.

Outgoing Prime Minister Romano Prodi -- whose administration had so far held out hopes the deal could still be salvaged -- held talks with top officials involved in the carrier's sale on Tuesday morning.

The government -- which holds a 49.9 percent stake in Alitalia that it has been trying to sell for more than a year -- is also expected to hold a special cabinet meeting for Wednesday to discuss the airline's fate, a government source said.

Aeroflot, which Italian prime minister-elect Silvio Berlusconi said last week could begin talks with Alitalia after the conclusion of the Air France-KLM sale, said it was waiting for an Italian invitation to start negotiations.

"Aeroflot treats with understanding an instruction given by President Vladimir Putin...," an Aeroflot spokesman told Reuters.

"We are expecting the Italian side to invite us to talks. However, Aeroflot will be guided (in its decision making) ... purely by pragmatic reasons and interests of investors."

Putin was hosted by Berlusconi in Sardinia last week, and had said Aeroflot was ready to open talks with Alitalia.

Alitalia's shares were suspended from trade in Milan pending a statement.

Loan Inevitable

Alitalia, which says it needs at least 750 million euros ($1.19 billion) by mid-year to keep flying, risks having its license to fly revoked by Italy's civil aviation authority unless it details plans for fresh funding soon.

Newspaper Il Sole 24 Ore reported that Prodi's government could issue a decree granting the airline a 100-150 million euro loan, and defend it against European Commission objections by citing reasons of public order.

The European Union forbids state aid and has said it sees no special circumstances for such help to the airline.

Any such loan must be based on commercial terms, it has said.

The Italian government had initially said a bridge loan would be granted only if the deal with Air France-KLM was sealed, but agreed with the incoming government last week to seek a bipartisan solution to keep the airline flying.

One union leader said a government loan was inevitable.

"It doesn't mean that it has to be a bridge loan, there can be other kinds of loans," the FILT-CGIL union's Fabrizio Solari told local radio.

The head of an Alitalia pilots' union instead continued to hold out hope for a deal with Air France-KLM, telling local radio he refused to believe the airline had called it quits.