Alitalia board tells CEO to continue talks on Etihad deal

Airline hook-up could mean job cuts, debt restructuring

(ANSA) - Rome, June 6 - Alitalia's board of directors ended its meeting Friday on a proposed investment by Abu Dhabi-based airline Etihad, saying it delegated authority for further talks to the airline's CEO Gabriele Del Torchio. Etihad could invest up to 550 million euros in the cash-strapped Italian carrier.

Reports have suggested the deal would require the Italian carrier to cut as many as 2,500 jobs and restructure as much as 800 million euros in debt. The negotiations, which have been going on for about six months, would see Etihad take a share as large as 49% in Alitalia. That has triggered concerns with the European Commission which warned Italian authorities to ensure the United Arab Emirates carrier does not gain a majority holding.

EC rules required that majority ownership of European airlines remain in European hands and earlier this week, the Italian government reassured the EC that those rules were obeyed. Alitalia's board had originally scheduled Friday's session for a budget review, but it was expected the Etihad bid would take priority. Italian Labour Minister Giuliano Poletti on Tuesday said that between 2,400 and 2,500 layoffs were expected at Alitalia. Poletti was not clear on what jobs would be cut from the airline that employs about 14,000 people.

The Italian government will be involved in any talks related to labour because it will have a role to play through its various lay-off programs that may be required to help blunt the impact of job losses, added Poletti. The tie-up would allow Etihad to expand its roots in the lucrative European market while giving new life to Alitalia, which was subject to a government-led bailout last fall - the latest step in the carrier's attempts to restructure itself over the last several years as it struggles to remain competitive.

In October, the Italian government engineered a 500-million-euro Alitalia restructuring plan that included a 300-million-euro capital increase and 200 million euros in new lines of credit. However, major investor Air France-KLM at the time rejected the restructuring plan, saying it did not go far enough to reduce Alitalia's debt which is also a sticking point for Etihad. According to recent media reports, Etihad has been negotiating with banks that are the major creditors in Alitalia, including Intesa Sanpaolo and UniCredit, in an effort to see them write down a sizeable amount of the Italian airline's debt.

The proposed investment also triggered protests from rival European airlines, which were also upset about last fall's bailout plan that saw Poste Italiane agree to underwrite the October capital increase to the tune of 75 million euros. That triggered complaints from rival European carriers of State aid, an accusation that the Italian government has denied. In February, German airline giant Lufthansa went further calling on the European Commission to halt Etihad's proposed investment in Alitalia, alleging the use of State aid in disguise to break competition rules.