April 8, 2008 / 1:42 PM / 12 years ago

Alitalia plays for time with survival at risk

MILAN (Reuters) - Alitalia’s board looks set to play for time over the state-owned airline’s survival, with a takeover by Air France-KLM on standby and unions set for last-ditch talks with the outgoing government Thursday.

Air France-KLM (AIRF.PA), the world’s biggest airline, said on Monday the deal’s future was up to Alitalia’s AZPIa.MI unions.

The Franco-Dutch carrier’s board approved its CEO’s decision to break off talks to buy the Italian flagship last week because of employee opposition.

Alitalia postponed its own planned talks with workers from a Wednesday date, a union source said, and a board meeting later on Tuesday could decide whether to seek protection from creditors.

Alitalia now faces a double deadline of cash and power, with funds running perilously low and its major shareholder, the Italian government, heading for an election on April 13 and 14.

The outgoing centre-left government is meeting Alitalia’s unions on Thursday in a last-ditch attempt to clinch a deal before the vote.

The airline’s board is meeting later on Tuesday ostensibly to decide whether it needs to ask for immediate protection from creditors — but it could also look at postponing such a politically sensitive decision until after the vote.

The outgoing administration of Prime Minister Romano Prodi approved Alitalia’s takeover by Air France-KLM but is tipped to lose the election, according to opinion polls.

That could hand the sale to media magnate Silvio Berlusconi, who has said he wants an Italian deal — but so far no domestic contender has come forward.

Air France-KLM did not say in its statement on Monday whether its talks were definitively over. It holds most of the cards now with no alternative offer in sight and Italian unions have mellowed their tone since last week’s acrimonious break-up.

The leader of the Cisl union, one of Alitalia’s biggest, told La Repubblica newspaper on Tuesday that a post-election agreement with Air France-KLM would be desirable, while other unions indicated on Monday they still saw room for discussion.

The Franco-Dutch airline’s bid included a 10 percent staff cut as well as an all-share offer valuing Alitalia at around 138 million euros ($217.7 million), with a further 1 billion euros of funds in a capital increase and a deal on its bonds.

Success would give Air France-KLM a key position in one of the world’s most popular tourist destinations and the lucrative business route from Rome to Italy’s financial capital of Milan.

Air France-KLM said on Monday this was “the only plan able to allow Alitalia to return to health swiftly.”

Alitalia has about 1.37 billion euros of debt and is bleeding well over 1 million euros a day. Cash resources are around 160 million euros, Corriere della Sera newspaper said on Tuesday. But rising oil prices could shrink those finances further.

Economy Minister Tommaso Padoa-Schioppa, who is driving the sale, has said unions must make a move fast or risk special administration for the airline — under which the government would appoint someone to sort out whether it could fly on.

Alitalia’s shares are suspended awaiting the board’s decision on Tuesday.

(Writing by Jo Winterbottom; editing by Elaine Hardcastle)

Additional reporting by Alberto Sisto in Rome

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