ROME The board of Alitalia on Wednesday approved a revised business plan, promising severe cost cuts to make the Italian airline more profitable, but its new strategy failed to convince top shareholder Air France-KLM (AIRF.PA).
The Franco-Dutch group, which owns 25 percent of Alitalia, voted against the plan, a source close to the matter said.
"Air France welcomed the plan, but the problem with the debt remains, so they voted against it," the source said.
Air France-KLM declined to comment.
Alitalia said in a statement that the revised industrial plan would include "severe cost cuts", but did not mention any of the heavy job losses of up to 2,000 and salary cuts that sources this week said were part of the proposals on the table.
However, the company said it would cut the number of its medium-range aircraft and increase the number of international and intercontinental flights as it seeks to boost revenues by focusing on the more lucrative long-haul market.
The board also approved an extension to November 27 of a Friday deadline for shareholders to subscribe to a 300 million euro ($402 million) capital increase needed to boost its coffers.
The Italian airline is wrestling with losses and is stuck in a months-long tussle with Air France-KLM over whether they want to keep their strategic and financial partnership alive.
Air France-KLM is Alitalia's biggest shareholder but it has written off its 25-percent stake and threatened to sit out of the cash call unless the Italian carrier comes up with a tough restructuring plan to lower its 813 million euro net debt.
The Franco-Dutch group was annoyed by being left out of the work on the new plan, analysts said, adding that while the changes proposed were a step in the right direction, they fell short of meeting Air France-KLM's conditions.
Demands for banks to write off big parts of Alitalia's debt and heavier restructuring of the carrier's sales and support structures, were some of the sticking points, analysts said.
"Air France-KLM's financial leeway is so slim that it cannot decently invest in Alitalia without obtaining strict compliance with its conditions," Harald Liberge-Dondoux, an analyst at CM-CIC Securities, said in a note.
Air France-KLM is in the midst of its own restructuring, including the need to cut its net debt of 5.40 billion euros, and can ill-afford ploughing more money into Alitalia.
Even if Air France-KLM's stake drops to around 6 percent should it refuse to participate in the cash call, the airline is unlikely to give up on Alitalia and may return with its demands as part of a take-over offer for the Italian carrier next year, analysts said.
Air France-KLM has said in the past it would consider taking control of its SkyTeam alliance partner to bolster its access to the Italian travel market, Europe's fourth largest.
Despite Rome dangling the prospect of a new Asian partner for Alitalia should Air France-KLM walk away, neither side wants to abandon an alliance that airline insiders say could yet bring strategic benefits to both carriers in the long-term, especially as a concrete alternative partner has yet to emerge.
Italy's unions have said their response would be "very, very hard" should any job cuts at Alitalia compound the situation for workers already struggling in a grim economic environment.
Several dozen employees staged a sit-in outside Alitalia's headquarters in Rome during the meeting, shouting insults at management as they protested their short-term contracts and any job cuts that may have been discussed.
Alitalia remains a political hot potato for the fragile coalition government of Enrico Letta, and any tough revamp of the carrier to suit a foreign investor would rankle.
The airline, which has made a profit only a few times in its 67-year history, has yet to convince the market that its strategy will make it sustainable in the long-term.
Alitalia needs a partner willing to invest billions of euros in larger aircraft and intercontinental routes to boost revenues, given that the cash call, only partially subscribed for now, is only a temporary reprieve, analysts said.
So far, Alitalia can count on up to 240 million euros pledged in the cash call, among others by Italy's two biggest banks IntesaSanpaolo (ISP.MI) and UniCredit (CRDI.MI) as well as by state-backed postal services group Poste Italiane, which Letta pulled in last month to try and keep Alitalia flying.
Andrea Giuricin, a transport analyst at Milan's Bicocca University, said the decision to pull in Italy's postal service provider has effectively stymied discussion on a true long-term industrial plan.
"Strategically, the move by the government to bring in Italy's postal service is backfiring because it's effectively alienating Air France, which is a more natural (industrial) partner," Giuricin said.
($1 = 0.7442 euros)
(Additional reporting by Cyril Altmeyer in Paris, writing by Agnieszka Flak; Editing by Bernard Orr)