Page last updated at 12:12 GMT, Sunday, 2 November 2008

EU rules warning on Alitalia deal

Alitalia planes
Attempts to rescue Alitalia have been going on for two years

The rescue deal for the Italian airline Alitalia must not breach European Union competition rules, the carrier's bankruptcy administrator has warned.

An investment group, the Cai, made an offer of 1bn euros ($1.27bn; 789m) for Alitalia on Friday, despite the lack of agreement with some unions.

About 3,000 workers will lose their jobs under the rescue plan.

The Cai hopes to link Alitalia with a major European airline, but a decision is not expected for several weeks.

Air France-KLM, Lufthansa and British Airways have all been courted as possible partners for Alitalia.

The rescue offer from the Compagnia Aerea Italiana (Cai), came after lengthy talks with Alitalia's trade unions, which broke down on several occasions.

Under the deal, 12,500 workers jobs will be saved, but 3,500 jobs will go, as well as some aircraft and some unprofitable routes.

Bankruptcy risk

Alitalia's bankruptcy administrator, Augusto Fantozzi, will study the offer this week, but has said any deal must not violate European Union competition rules.

The unions had accepted Cai's takeover of Alitalia in principle - but the airline's pilot and flight staff unions have not agreed to the Cai's detailed terms.

The Cai had set a Friday night deadline for a deal to be reached over securing Alitalia's future.

Without a binding rescue offer, Alitalia would have been forced to seek new funding within weeks to keep itself going - or risk bankruptcy.

The negotiations were chaired by Gianni Letta, a senior aide to Prime Minister Silvio Berlusconi - the Italian government was keen for a deal to be reached.

Keeping Alitalia alive was one of the main election planks on which Mr Berlusconi ran for office in April.

Long decline

The Italian government has since rewritten the bankruptcy laws to pave the way for a bail-out by the Cai consortium.

Alitalia is one of the best-known names in global commercial aviation, and the airline has been in business since 1946.

It symbolised Italy's economic recovery after the war, becoming the world's seventh largest airline in the 1970s, before beginning a long decline, which has grown steeper in recent years.

Although the Italian government sank 4.5bn euros into the airline between 1998 and 2005, it continued to lose money.

Alitalia filed for bankruptcy in August after dodging the move for years as it battled with frequent strikes, rising oil prices, and political interference.

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