* Money to go to capital hike, design, training
* Transport Minister Lupi said hopes deal done by July 15 - source
* Alitalia, unions discussed 2,251 layoffs - Lupi (Adds expected deal deadline, details, background)
ROME, June 11 Abu Dhabi-based Etihad Airways is prepared to invest up to 1.25 billion euros ($1.7 billion) in Alitalia over the next four years under a possible tie-up between the two carriers, Italian Transport Minister Maurizio Lupi said on Wednesday.
Of that, 560 million euros would be used to buy new shares in the Italian airline and the rest would be invested in planes, design and training, Lupi told reporters in Rome.
Italy's flagship carrier Alitalia, which received a 500 million-euro government-engineered rescue package last year, risks running out of cash by August unless it can find a cash-rich partner.
A trade union source said Lupi told a meeting of Italian union representatives on Wednesday he hoped the long-awaited deal with Etihad would be completed by July 15.
Alitalia Chief Executive Gabriele Del Torchio said on Monday he was confident an agreement would be reached in a few weeks.
Rome-based Alitalia, once a national icon whose staff wore uniforms designed by Giorgio Armani, is now a symbol of economic malaise in a country struggling to emerge from recession.
The airline, which employs 14,000 people, would have to cut jobs to meet conditions set by Etihad, which already has stakes in Air Berlin and Aer Lingus.
Lupi said the two sides had discussed possible lay-offs of 2,251 Alitalia staff as a condition for Etihad's investment at Wednesday's meeting, broadly in line with previous reports.
($1 = 0.7345 Euros) (Reporting by Alberto Sisto; Writing by Gavin Jones and Isla Binnie; Editing by Pravin Char)