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Troubled Alitalia edges toward bankruptcy

/ Source: The Associated Press

Alitalia edged closer to bankruptcy protection Thursday after Air France-KLM abruptly broke off talks to buy the struggling national airline, though union leaders said they were open to resuming talks.

Even in bankruptcy, the airline could continue flying under the supervision of a government-appointed administrator while it developed a financial reorganization plan.

Alitalia’s board convened an emergency meeting to determine its next step. About 300 employees gathered outside the headquarters, chanting “We want Air France” and demanding the return of chairman Maurizio Prato, who resigned in frustration on Wednesday.

The government, meanwhile, said it would try to determine whether there was still a chance to coax Air France-KLM and unions back to the bargaining table. Barring that, analysts said a bankruptcy filing appeared the most likely outcome.

Air France-KLM Chairman Jean-Cyril Spinetta — who had made the takeover conditional on the acceptance of Alitalia’s strike-prone unions — called their proposals “incompatible” with plans to return the airline to profitability quickly.

Labor leaders said Thursday that the union plans were not final.

“We are ready to negotiate. Our proposal was never an ultimatum,” said Roberto Panella, head of the UGL transport union, at a news conference involving eight of Alitalia’s nine unions.

“We’ll do everything to avoid bankruptcy protection,” said Fabrizio Solari, head of the FILT-CGIL union.

Air France-KLM spokeswoman Veronique Brachet declined to comment on the unions’ calls for talks to resume.

Alitalia’s board has few options. It can request bankruptcy protection, or it can try to hold on using its cash reserves — likely selling additional assets — until a new government is in place after parliamentary elections scheduled for April 13-14. In the meantime, it is likely to name a new temporary chairman to replace Prato.

Opposition leader and former Premier Silvio Berlusconi, who has been leading in the polls, has said he was gathering investors to make an alternate deal, but hasn’t publicly named them. Some of his remarks have brought the scrutiny of Italy’s stock market regulator.

The Milan Stock Exchange suspended Alitalia shares, which had closed Wednesday at 50 euro cents (78 U.S. cents). The stock has swung beyond the exchange’s 10 percent limit in both directions in recent weeks, as the sale has become embroiled in national politics.

The Italian government has been trying for 15 months to sell its 49.9 percent stake in Alitalia before the company runs out of cash. Economics Minister Tommaso Padoa-Schioppa said Wednesday that if the Air France-KLM plan failed, bankruptcy would be the only solution.

Alitalia is losing nearly $1.6 million a day, and the airline said in February that its cash reserves had dropped to about $282 million, down nearly 40 percent from a month earlier — though it says it has sold assets since then that have boosted its liquidity.

Air France-KLM’s offer valued the airline at around $216 million, about 20 percent of the stock market value at the time and much less than expected. Its plan called for layoffs of around 2,100 workers, closing the cargo unit and getting rid of some short-haul aircraft before adding new longer-haul planes. In one of the most opposed measures, Air France-KLM planned to downgrade Milan’s Malpensa airport, using Rome’s Leonardo da Vinci airport as the main southern hub, to complement its hubs in Paris and Amsterdam.

Unions, which have shown little stomach for cuts, would have to go along when bankruptcy becomes an option because the only other alternative would be a complete liquidation, said Oliviero Baccelli, an airline and transport analyst at Milan’s Bocconi University.

In the meantime, there is a brief window for reopening talks with Air France-KLM, he said.

“It is clear that this must happen in the next 48 hours, otherwise the road to bankruptcy protection already will have been reached,” Baccelli said.

Baccelli speculated that Alitalia’s 11,000 employees may see the writing on the wall that Air France-KLM is Alitalia’s best hope and press their leadership to make concessions.

In bankruptcy, an administrator would be named to run Alitalia and the company would be granted protection from its creditors and suppliers — but only under the terms of a business plan guaranteeing the company’s return to profitability with radical restructuring. The plan, which must be written within 180 days, could cover a period of years.