Alitalia tries to sell Air France deal to unions

ROME (Reuters) - Italy's government said on Tuesday it struck a deal with unions and key players to avoid job and revenue losses at Milan's Malpensa airport in an effort to clear the way for Alitalia's sale to Air France-KLM.

Italian police clashed with aircraft maintenance workers protesting outside Alitalia's Rome headquarters over possible job losses from the sale.

The government said Malpensa's operator SEA had signed up to the airport agreement. It urged SEA to drop a 1.25 billion euro ($1.98 billion) damages claim against Alitalia over its plan to halve flights at the airport.

In a statement, it said the government had honored its commitment to maintaining revenues and job levels at the airport, without giving details. SEA had no immediate comment.

The agreement came as Alitalia's AZPIa.MI management prepared to meet the ailing airline's unions to seek backing for Air France-KLM (AIRF.PA) takeover despite a hostile initial reception to the deal. Air France-KLM Chief Executive Jean-Cyril Spinetta is also expected to attend.

A Reuters witness said police in riot gear, guarding the airline office where talks were due to take place, clashed with a crowd of 300-400 workers from a company which carries out maintenance on Alitalia aircraft.

Ending SEA's claim and getting Alitalia's strike-prone unions on board by March 31 are among the conditions Air France-KLM has imposed as prerequisites to conclude the takeover, seen as the Italian national airline's last shot at averting bankruptcy.

"The future of thousands of workers across Italy and therefore also of those employed at Malpensa depends on this (Alitalia-Air France) deal," the government's statement said.

If SEA does not withdraw the claim "it will have to assume its responsibilities over the consequences," it said.

Alitalia's board and Italy's outgoing government, which holds a controlling 49.9 percent stake, have both approved the Franco-Dutch carrier's 138 million euro bid which also includes an offer for bonds and a 1 billion euro capital increase.

The fate of the deal now rests with unions and Italy's next government, to be elected in April, whose blessing Air France-KLM also wants before wrapping up the sale.

JOB FEARS

Air France-KLM's share swap bid valued Alitalia at under 10 euro cents a share -- less than a fifth of its market value before the deal was announced.

Alitalia shares were suspended limit down at the start of trade and fell 22 percent to a record low of 29 euros cents when trading resumed. That follows a 27 percent tumble on Monday on the lower-than-expected bid price.

"After the agreement with Air France-KLM, Alitalia has nothing more to give. What appeal can a company in such deep trouble have for the market?" said a trader in Milan.

The unions -- who were split over a French takeover while the two carriers were in exclusive talks -- have since joined forces to complain bitterly about being kept in the dark until the final moment over the expected restructuring and job cuts.

The head of the Cisl union, Raffaele Bonanni, told Italian television that he estimated job losses from the deal would touch 7,000 including cuts at Alitalia's troubled ground services unit. So far, speculation had been limited to about 1,700 job cuts related to airborne activities.

Alitalia has a workforce of around 19,000.

One pilots' union that had favored the deal changed its mind after learning of planned cuts to the cargo unit.

Italy's flagship carrier has not posted an operating profit for nine years and is bleeding cash at a rate of more than a million euros a day. It is selling off assets and has warned it needs at least 750 million euros by mid-year.

(Additional reporting by Gilles Castonguay and Alessandra Farina in Milan; editing by Keith Weir)