Italy vows to ensure survival of Alitalia

ITALY'S GOVERNMENT scrambled to salvage Air France-KLM's collapsed deal to buy Alitalia yesterday, promising to keep the airline flying despite a looming cash crisis.

The state-controlled carrier, whose fate has become a top campaign issue ahead of Italy's general election in 10 days' time, has said its cash will run out in a few months unless a new owner steps in to pump money into its coffers.

Italy's government said in a statement that it would verify if Air France-KLM's decision to back out was final and it committed itself to keeping the national carrier in operation.

The EU has banned further state aid, but the government can put Alitalia under emergency administration, which would allow it to operate with protection from creditors. Italy's economy minister, who is overseeing the sale, and analysts say that this is Alitalia's only alternative to the French deal.

"Alitalia is no longer able to stand on its own two feet," said Edoardo Staunovo Polacco, a bankruptcy law lecturer at Bocconi University. "Either it must be saved by another party or it is inevitable it will go into special administration. It doesn't have any more money and cannot get any from the state."

Once a proud symbol of Italy's post-war economic boom, Alitalia has been felled by tough competition, soaring fuel prices and frequent labour strikes. It has posted a profit only four times in the past 15 years.

The board of Alitalia, in which the Italian state has a 49.9 per cent stake, held crisis talks yesterday and must soon appoint a new chief. Chairman Maurizio Prato quit on Wednesday, saying that the company was "cursed".

The economy ministry urged the airline's board to take urgent action to ensure survival of the company. Unions and politicians remained hopeful that the airline could avert bankruptcy and resume talks with Air France-KLM, which abandoned negotiations with unions on Wednesday after rejecting their demands aimed at saving jobs.

Alitalia, which loses more than €1 million a day, has enough funds to last until the end of June, La Repubblica newspaper calculated. The airline has said that it needs a €750 million cash injection by mid-year. - (Bloomberg)