Italy says Air France still Alitalia's only hope

Workers of Alitalia's maintenance arm Atitech throw a model of an Alitalia airplane into the Trevi fountain during a demonstration in Rome April 10, 2008.

ROME (Reuters) - Italy's government on Thursday sought to convince Alitalia's AZPIa.MI unions that a takeover by Air France-KLM was the ailing carrier's only option, telling labor groups they had one last chance to agree to a deal.

As government and union officials met at the prime minister's office, around 500 Alitalia workers protested outside parliament next door.

One group tossed a 2-metre (6 ft 7 in) model Alitalia aircraft into the nearby Trevi fountain, much to the amusement of tourists.

Air France-KLM (AIRF.PA) walked away from a takeover last week over union opposition, but later said salvaging a deal was "up to Alitalia, its employees and unions". The government and unions took that as a sign an accord was still possible.

In a final push before the country heads to a parliamentary election on Sunday and Monday, the government wants to convince unions to resuscitate the deal.

"The work done in these days has been geared to creating a second chance so that a deal can be concluded," Economy Undersecretary Enrico Letta told the unions. "We are, however, convinced that a third opportunity will not present itself."

According to a source at the meeting, Letta said the government will present Air France-KLM with a plan next week aimed at persuading it to return to talks.

Letta later said in a statement the term "persuading" had not been used at the meeting but did not deny the government would present a plan.

After the meeting, the government said it would play an active role to help conclude the deal and planned to convene Alitalia's unions again next week, hoping that an agreement could be reached then.

Letta also said any deal would be based on conditions set out by Air France-KLM before it walked away from the talks.

Transport Minister Alessandro Bianchi said all Alitalia unions had agreed to find a way to conclude a deal with Air France-KLM. He did not give further details.

Alitalia's biggest union, Filt-Cgil, poured cold water on hopes for an agreement as early as next week.

"To suggest that an accord is within reach, when this is not the case, is the least wise thing one can do," said the union's secretary-general, Fabrizio Solari.

BADLY FLAWED

Alitalia staff protesting outside parliament included dozens of uniformed pilots, cabin attendants, computer technicians, mechanics and call-centre workers. Most were from Rome but one group had traveled from Naples.

Workers blew whistles and brandished banners with slogans such as "The country needs Alitalia", "Alitalia's not a supermarket" and "You sell Alitalia, you don't give it away".

One message to Finance Minister Tommaso Padoa-Schioppa read: "Are you in the Italian or French government?"

Captain Francesco Barbato, executive technical director of pilots' union ANPAC, said at the demonstration his members were opposed to plans to cut the number of aircraft in the Alitalia fleet and eliminate the jobs of around 500 pilots.

Roman computer technician Francesco, who declined to give his surname, said he feared the Air France-KLM proposal would result in around 5,000 services jobs being transferred to France.

"The cost of employing these workers is very low so these jobs should be kept in Italy," he said.

Some employees in recent days have begun forming pro-Air France-KLM groups and have even handed back their union badges, local media have reported.

One cabin attendant, dressed in her green and blue uniform, said she wanted the unions to accept the Air France-KLM offer because there was no other option.

"I'm worried about my job of course, but there is no alternative so they should sign the deal," said the 34-year-old who asked not to be identified.

Alitalia, which meets the unions on Tuesday, says it has cash to last it only for the very short term. The deal with Air France-KLM was considered its last shot at avoiding bankruptcy.

(Additional reporting by Iain Rogers)

(Editing by Paul Bolding)