Unions and management at Alitalia have struck a deal on payoffs for 3,700 employees set to lose their jobs.
Alitalia's cost-cutting deal unlocks a vital government loan
The agreement should open the way for the restructuring which could save the Italian carrier from bankruptcy.
Late-night meetings with government ministers finally brought weeks of prickly talks over the fate of a sixth of the airline's workforce to an end.
Those laid off will get two years of state welfare payments, while staying on the firm's books for two years.
They will then get three years of redundancy payments at a lower level.
Only one of Alitalia's nine unions refused to sign up.
"We have laid the foundation stone," said Alitalia chief executive Giancarlo Cimoli.
"Now we have to build the house."
The agreement also opens the way to a 400m euro ($490m; £280m) government loan package to help fund a wholesale restructuring.
The plan is to split the airline into two: AZ Air to handle flight operations, and AZ Service to look after the ground side of the business.
Further funding will have to come from future share sales. The airline has told shareholders it is hope to sell 2bn euros of new shares by March 2005.
Alitalia lost 330m euros in 2003, as it struggled - along with much of the rest of the aviation business - with high costs, soaring oil prices and competition from budget carriers.
Several US airlines are still in bankruptcy proceedings, while Switzerland's Swiss is still trying to recover from its own remodelling following Swissair's collapse in 2002.