ROME/MILAN (Reuters) - An Italian union said on Wednesday that it is willing to enter negotiations to help to meet conditions set by Etihad Airways for investing in Alitalia after talks between the airlines stalled over debt and job cuts.
Loss-making Alitalia was kept afloat by a government-engineered 500 million euro ($691 million) rescue package last year but needs to find a cash-rich partner quickly to revamp its flight network or risk having to ground its planes.
Abu Dhabi-based Etihad has been looking at Alitalia's books for a possible investment since early this year, but the prospect of heavy job cuts at Alitalia and its debt of at least 800 million euros have been major hurdles in the talks and Etihad's stance appears to have hardened in recent weeks.
"At the moment, there is a bit of a stalemate," a source close to the matter said on Wednesday.
"Beyond debt, there are issues around job cuts, legal aspects and problems related to infrastructure, and Etihad wants all points resolved. They want to invest in an Alitalia that carries no dead weight."
Etihad sent a letter to Alitalia last week outlining its conditions for a possible investment, including up to 3,000 job cuts out of Alitalia's 14,000-strong workforce, the source said.
Any large job cuts are likely to stir opposition from Italy's notoriously feisty and powerful unions. However, the head of the UIL, one of the main Alitalia unions, said his group is prepared to negotiate.
"We are willing to do our part to get to an agreement," UIL's Luigi Angeletti said in an interview with RaiNews24. After speaking with Alitalia's CEO, Angeletti confirmed that labor costs and the airline's debt were the main stumbling blocks in the talks.
Etihad has so far refused to negotiate with Italy's unions, which have sunk negotiations between Alitalia and other bidders in the past.
The Gulf airline, which could invest up to 500 million euros and buy a 49 percent stake in Alitalia, also wants the airline's creditors to restructure nearly half of the airline's debt, sources have said.
However, the banks - which are also big shareholders in the airline - have been unwilling to make sacrifices without a clear guarantee that the company can be turned around.
Disagreements over a debt restructuring already scuppered efforts by Alitalia to secure more capital from its shareholder Air France-KLM (AIRF.PA) last year. Air France-KLM eventually allowed its 25 percent stake to be diluted to about 7 percent.
Alitalia declined to comment on the status of the talks. Etihad could not immediately be reached for comment. ($1 = 0.7231 Euros)
Reporting by Alberto Sisto in Rome and Paola Arosio in Milan; Writing by Agnieszka Flak; Editing by David Goodman