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Alitalia, the Italian national airline that has made a profit only a few times in its 67-year history, once again risks collapsing as the government scrambles to find investors willing to rescue its problem child.
Rome offered a financial lifeline to Alitalia through the state-owned post office, but the plan depends on private shareholders ploughing more money into what many investors regard as a corporate lost cause.
The carrier, whose board meets on Friday, needs 500 million euros (423.1 million pounds) to stay in business as it has lost nearly 700,000 euros a day since being privatized in 2008 and has debts of around 1 billion.
Cash-strapped Italy is realizing it may no longer keep its flag carrier in national hands. However, Rome is loath to accept a politically sensitive sell-out to Air France-KLM, Alitalia's top shareholder with a 25 percent holding, even though analysts say no other option makes business sense.
Time is running out. Alitalia's management, the government and banks have held talks daily for the last fortnight to keep the airline's fleet in the air beyond this week.
The government said late on Thursday that Poste Italiane would participate in a capital increase for the flag carrier. However, it called on private shareholders to share the burden of injecting new capital into the airline.
It gave no financial details. However, sources close to the situation told Reuters earlier that the rescue plan envisaged the state injecting 150 million euros into the airline, the same amount as existing shareholders, while banks would provide an additional 200 million euros in new loans.
Poste Italiane would contribute 75 million euros while the rest of the state help would come in the form of credit guarantees, the sources said.
"It's a bridging solution to guarantee the financial survival of the company but it depends on a strong change in the way the company is run," one of the sources said.
At stake are what the government says is a strategic national asset, 14,000 jobs and a desire to buy time - the fragile right-left coalition government led by Enrico Letta can ill afford the risk of flights being grounded.
Energy group Eni has already threatened to stop supplying fuel beyond Saturday if no rescue plan is agreed fast.
Air France-KLM has shown interest in taking control but its offer comes with strings attached. Any cash injection by state firms would win only breathing space, without tackling the problems that got Alitalia into trouble.
"Politicians are looking for an alternative solution to a rather obvious business-based deal with Air France," said Andrea Giuricin, transport analyst at Milan's Bicocca University.
"Air France-KLM has its own financial problems, but at least it knows how the airline market works. None of the other proposals makes any business sense."
Various Italian governments have pampered Alitalia with more than 4 billion euros in aid. Founded in 1946, the carrier, whose uniforms were once designed by fashion icon Armani, has long been the symbol of lavish spending and excessive staff benefits.
(Read more: High fliers: The world's fastest-growing airlines)
It once created a route to appease a minister who wanted to fly to Rome from his hometown in the north. In the 1970s, unions ended a strike only after it met their demand that cabin crew should be picked up at home by a driver. Until 2008, staff flew for free on its lucrative Milan-Rome route.
Most perks have gone since the airline was last rescued by a group of 21 Italian investors in 2008 at the request of then prime minister Silvio Berlusconi. Its costs are now lower than Air France's and it has one of the youngest fleets in Europe.
The airline - whose initials for critics stand for "Always Late in Takeoff, Always Late in Arrival" - has improved its punctuality and in September fared better than British Airways and Germany's Lufthansa, according to FlightStats.
But under the "Phoenix" rescue plan brokered by Berlusconi, Alitalia focused on the domestic and regional markets - a bet it lost due to competition from low-cost carriers and from high-speed trains on the Milan-Rome route.
Its new CEO Gabriele Del Torchio is now pinning hopes on the higher-margin long-haul market but needs money for big planes. Here lies the benefit of a possible tie-up with Air France-KLM.
Air France-KLM again
Back in 2008, Air France-KLM offered to invest up to 6.5 billion euros to revamp Alitalia despite union opposition. But Berlusconi, who won that year's election promising to keep the airline in Italian hands, turned this down.
Many among the current shareholders - which include bank Intesa Sanpaolo (ISP.MI) and highway operator Atlantia (ATL.MI) - are prepared to sell their stake, although having invested around 1.5 billion euros they don't want to leave empty-handed.
Alitalia said on September 26 that it had total available cash of 128 million euros at the end of June, including unused credit facilities. This is not much, considering Alitalia needs at least 10 million euros a day to keep flying and has annual operating costs of at least 3.7 billion euros, analysts say.
Air France-KLM is biding its time, hoping to buy Alitalia as cheaply as possible, preferably without having to take on its debt, analysts have said.
The marriage would probably mean severe cost cuts. "The logical way to save Alitalia is for Air France to take over the basic operating core and attach it to its own system, but this means getting rid of the entire Alitalia back-office structure and I don't know if the Italians are ready for that," said the head of a European airline, asking not to be named.
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