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Last Updated: Wednesday, 15 September, 2004, 03:11 GMT 04:11 UK
Unions agree Alitalia pilot deal
Alitalia plane
The airline has set a deadline of Wednesday for an agreement
Trades unions at the near-bankrupt Italian state airline, Alitalia, have agreed on a new contract for pilots.

The deal, a vital first step to the airline's survival, will cut their pay and nearly double their flying hours.

Alitalia has struggled financially since the 11 September attacks and is said to be losing $60,000 an hour.

The rescue plan, which includes about 5,000 job cuts, must be agreed on Wednesday if Alitalia is to receive a key $482m government-guaranteed loan.

Alitalia management and labour unions are holding further talks to reach an agreement on cabin crew and ground staff by the Wednesday deadline set by the airline's chief executive Giancarlo Cimoli.

Rumours of progress in overnight talks saw the Italian airline's shares close up 15% on Tuesday in Milan, building on a 7% jump on Monday.

Bail out or bust

Mr Cimoli has said that unions must agree to his restructuring plan or he will file to put the company into administration. Alitalia is 62% owned by the Italian state.

Unions said that the accord on pilots' conditions was a "turning point", adding that they were "certain" a deal on other Alitalia staff was possible.

Pilots will nearly double the 450 hours they currently fly each year, as well as taking a pay cut, which willl save the airline 52m euros ($63m) in 2006.

The airline said it needs union agreement on the survival plan by 15 September or it would fail to qualify for a 400m euro ($482m; 271m) bridging loan that has been approved by the Italian government and the European Union.

It has warned that it will run out of money by the end of the month if the rescue package is rejected by the unions.

The problems facing Alitalia are far from unique.

Flag carriers have been hit by the emergence of low-cost rivals, as well as high fuel costs and a slump in demand for air travel following the 11 September 2001 terrorist attacks in the US and an outbreak of the killer Sars flu virus in Asia.

The BBC's Frances Kennedy
"The management wants to axe nearly a quarter of Alitalia's workforce"

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