MILAN/ROME Etihad Airways' proposal to start formal talks on its potential investment in Alitalia is not expected before Monday, two sources close to the matter said, cooling expectations that negotiations with the Italian airline would gain traction this weekend.
Alitalia was kept afloat by a government-engineered 500 million euro ($686 million) rescue package last year but needs to find a cash-rich partner quickly to revamp its flight network or else risk having to ground its planes.
Etihad has finished reviewing Alitalia's books as it considers whether to invest as much as 300 million euros via a capital increase, reserved for itself, for a stake of up to 40 percent, sources have said.
A tie-up with the Gulf carrier could bring Alitalia the money it needs to invest in a new strategy, focused on long-haul routes, after it has been struggling to compete against low-cost airlines and high-speed trains on domestic and regional routes.
"Nothing is expected before Monday," one of the sources said. "Whatever comes will likely set out the objectives of the formal negotiations. There won't be any talk of numbers at this stage, it's too early for that."
Italy's transport minister and a key Alitalia shareholder have said they expected Etihad to make a proposal this week.
An investigation by the European Commission into several foreign holdings in European airlines, including Etihad's in Air Berlin (AB1.DE), could also complicate the talks.
Both Etihad and Alitalia have acknowledged that a deal was far from certain, with big hurdles still to be resolved.
Etihad wants Alitalia's creditors, which include Intesa Sanpaolo (ISP.MI) and UniCredit (CRDI.MI), to write off big parts of the airline's debt of around 900 million euros, sources have said. Other options were for banks to agree to postpone the deadline for repayments or convert debt to equity.
Disagreements over a debt restructuring already scuppered efforts by Alitalia to secure more capital from its shareholder Air France-KLM (AIRF.PA) last year. Air France-KLM eventually allowed its 25 percent stake to be diluted to around 7 percent.
Another point of contention is Alitalia's headcount of 14,000, with Etihad pushing for job cuts, the source added.
Even if the two sides reach an agreement, no offer from Etihad would arrive before mid-May, they said. Etihad has said it will invest in the Italian carrier only if it fits in its network and if Alitalia has a credible plan to return to profit.
A stake in Alitalia, which offers access to Europe's fourth-largest travel market and flies 25 million passengers a year, would further Etihad's efforts to expand its global reach through strategic holdings in other airlines.
($1 = 0.7303 Euros)