* Problems can be overcome - govt source
* Stance does not mean deal is off - UAE-based source
* Etihad wants 2,000 Alitalia job cuts - source
(Adds Italian minister on Etihad letter)
By Valentina Consiglio
ROME, April 17 Etihad Airways has toughened its
stance on conditions for investing in Italy's struggling
Alitalia in continuing negotiations between the
airlines, sources close to the matter said on Thursday.
Loss-making Alitalia was kept running by a
government-engineered 500 million euro ($694 million) rescue
package last year, but it needs to find a cash-rich partner
quickly to revamp its flight network or risk having to ground
Abu Dhabi-based Etihad has been looking at Alitalia's books
for a possible investment since the start of the year. However,
the prospect of large job cuts at Alitalia and the airline's
debt of at least 800 million euros have been major hurdles in
"The position of the Arab group has hardened; some problems
have been more markedly underlined than before," one of the
A government source, however, said that Etihad's tougher
position could be overcome. "The government is counting on
finding a solution," the source said.
Italian Infrastructure Minister Maurizio Lupi told
parliament that Etihad had sent a letter to Alitalia on
Wednesday to set out its conditions for a possible investment.
Lupi said it is up to the company's private shareholders -
which include Alitalia's creditors Intesa Sanpaolo and
UniCredit - to respond.
Italian daily Il Messaggero reported on Thursday that a deal
between the two airlines was off because the conditions were not
in place, but the sources denied the talks had collapsed.
"It's part of negotiations ... It in no way means the deal
is over. They have just put tough conditions on the deal," a
United Arab Emirates-based source said.
An Etihad spokesperson declined to comment. Alitalia also
declined to comment.
Etihad CEO James Hogan held talks with Prime Minister Matteo
Renzi last week. A source with knowledge of the talks said at
the time that Etihad was considering investing up to 500 million
euros in Alitalia and was inching towards an offer.
Out of that investment, 350 million would be for a 49 percent
stake in the Italian airline, the source added.
However, the source also said that one of the conditions put
forward by the Gulf airline was for 2,000 job cuts out of
Alitalia's 14,000-strong workforce. Italian media have reported
demands for bigger cuts, with Il Messaggero on Thursday citing
"Things are a bit stalled, mainly because of job-related
problems. But there's too much at stake ... a solution will be
found," another source close to the matter said on Thursday.
Etihad began talks with the Italian airline after
disagreement over debt scuppered a potential Alitalia tie-up
last year with Air France-KLM, formerly Alitalia's
A marriage with Etihad could bring Alitalia the money it
needs to invest in a new strategy, focused on long-haul routes,
after its struggles to compete against low-cost airlines and
high-speed trains on domestic and regional routes.
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 = 0.7243 euro)
(Additional reporting by Paola Arosio and Praveen Menon;
Writing by Stephen Jewkes and Silvia Aloisi; Editing by Dale
Hudson and David Goodman)