Page last updated at 21:08 GMT, Monday, 21 April 2008 22:08 UK

Air France scraps Alitalia bid

Workers at Alitalia demonstrate
Unions were fearful of huge job losses if Air France took over the firm

Alitalia's future is under fresh threat after Air France KLM said it would walk away from its proposed takeover bid.

Air France suspended talks with the troubled Italian carrier last month after it failed to get the necessary backing from unions for its proposals.

It has now dropped out altogether, saying the contractual basis for its initial offer was "no longer valid".

Italy's outgoing cabinet is expected on Tuesday to discuss funding options to keep Alitalia going for the time being.

Financial crisis

Media reports have suggested that ministers could extend a short-term 150m euros loan to Alitalia while they examine the case for further funding to tide the airline over for a year.

The airline is currently losing 1m euros a day and many experts believed Air France represented the only hope of preventing its ultimate financial collapse.

Alitalia said earlier this month that it had 170m euros in cash at its disposal, enabling it to continue trading only in the "very short term".

Silvio Berlusconi's incoming government is seen as more willing to extend further financial support to aid the ailing airline than the outgoing administration led by Romano Prodi.

Mr Berlusconi has always backed keeping the airline in Italian hands and has asked banks and aviation groups to work urgently together on a plan to rescue the firm.

Air France's proposed 139m euros ($220m) takeover was always deeply unpopular with unions which feared it would result in massive layoffs and the closure of unprofitable routes.

Industrial unrest, spiralling costs and competition from budget airlines have combined to force Alitalia to the brink in recent years.




SEE ALSO
'Short term' survival at Alitalia
08 Apr 08 |  Business

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