UPDATE 1-Italy warns Alitalia may be liquidated without sale

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By Deepa Babington and Alberto Sisto

ROME, Sept 1 (Reuters) - Bankrupt Alitalia's AZPIa.MI cash reserves are dwindling fast and the airline will be liquidated if the latest plan to salvage it falls apart, the administrator overseeing the carrier's bankruptcy warned its unions.

Italy's government met the state-controlled airline's notoriously difficult unions on Monday in a bid to win their backing for a rescue plan that envisages the profitable parts of the airline sold off to a group of Italian investors.

The administrator, Augusto Fantozzi, told the unions that the airline's liquidity was expected to crumble to as little as 30 million to 50 million euros by the end of September, union officials present at the meeting said.

The airline reported liquidity of 314 million euros at the end of July.

"There's little cash left in the coffers, (it will last) at most until the end of September," Fantozzi said, according to a union source.

"There's very little time left. A deal with the unions is needed to sell the company while it's still alive. I'll do my best, but if there isn't any more gas in the tank I'll be forced to (liquidate the company)."

Alitalia, which filed for bankruptcy on Friday as a first step in the rescue plan, paid the International Air Transport Association 50 million euros on Monday just to be able to continue international ticketing, Fantozzi told the unions.

The unions, which scuppered a sale to Air France-KLM in April, are demanding the government consult with them not just on the layoffs expected, but also over the rescue plan's merits.

Talks between the two sides must be concluded by the end of next week, Fantozzi told the unions, who are up in arms over reports that as many as 7000 jobs -- or about 40 percent of Alitalia's work force -- will be lost.

The Italian consortium will make a formal offer for Alitalia's assets later on Monday, Cabinet Undersecretary Gianni Letta, who was also present at the meeting, told the unions. However, any other offers will also evaluated, he said.

The Italian investors are expected to focus on reviving Alitalia as a smaller, more efficient airline focusing on short- and medium-haul routes.

Prime Minister Silvio Berlusconi's government amended bankruptcy law and suspended antitrust regulations on Thursday to facilitate the rescue plan.

Berlusconi, who has made saving Alitalia a key priority since taking office, also echoed Fantozzi's comments on Alitalia's fate without a sale and said he was certain agreement with the unions would be reached.

"I have no doubt that there will be an agreement because it is the only solution possible," he said in Brussels where he is attending a European Union summit on the Georgian crisis. (Editing by Maureen Bavdek)