Airlines: Alitalia on Verge of Collapse After Investors End Talks With Unions

Silvio Berlusconi's rescue plan for Alitalia was last night on the brink of collapse after the consortium he put together to save the airline's "Italian-ness" walked out of talks with unions.

Alitalia would be the first European flag-carrier to go bust since Sabena, of Belgium, and Swissair in 2001, and is in the hands of a bankruptcy commissioner who was due to begin liquidation proceedings yesterday.

In a desperate attempt to save the company - and to save face - the government gave the unions one more day in which to come up with their own proposal. Thousands of jobs were riding on the response.

Last night, more than 100 cabin crew staged a protest in the international check-in area at Rome's Fiumicino airport. The demonstrators chanted "dignity and respect" and appealed to colleagues not to board flights.

In a statement, the transport and employment ministers in Berlusconi's right-wing government promised to avert "irreversible acts" by either the bankruptcy commissioner or the all-Italian consortium. But employment minister Maurizio Sacconi, said: "The scope for mediation has, I believe, been exhausted."

Emma Marcegaglia, the head of Confindustria, Italy's employers' federation, said she had expected tough negotiations, but "it was hoped that a deadlock could be avoided". She was speaking after seven days of contacts between the unions and Alitalia's would-be investors had culminated in an entire night of fruitless discussion. A spokesman for the consortium, formed to take over the profitable parts of Alitalia, said the unions did not "appreciate the grave situation of Alitalia or the need for profound discontinuity with the past".

The unions protested at what they claimed was a "take-it-or-leave-it" approach by putative investors. The representative of the UIL, the most moderate of Italy's three big trade union federations, said: "We have an increasingly strong suspicion that [the consortium] wants Alitalia to collapse so as to grab it afterwards."

Protests by the unions were strikingly reminiscent of those that drove away an earlier bid, from Air France-KLM in April. On that occasion the unions had an assurance from Berlusconi, who had just been re-elected prime minister, that a group of Italian investors was ready to buy the airline.

Though it took several months for a consortium to emerge, 19 companies and individuals expressed a readiness last month to sink a total of €1bn (£797m) into a relaunched Alitalia. Under a plan drawn up by Intesa Sanpaolo bank, the existing firm's vast debts - at least €1.2bn - would be dumped on the taxpayer.

The profitable bits of Alitalia would be hived off into a new airline that would also incorporate its main domestic competitor, Air One. And, at a later stage, it was intended a foreign partner would take a minority stake of 20%-25%.

The investors made it clear from the outset they envisaged a much smaller and cost-effective airline, stripped of many of its intercontinental routes. They made it clear they would only go ahead if the unions signed their business plan. That meant about 5,000 job losses and, according to the union side, pay reductions of up to 40%.

On Thursday, protests by Alitalia workers forced the cancellation of some 50 flights from Fiumicino and delayed scores of others.

Unlike other troubled airlines, Alitalia is not just a victim of high oil prices. Even before the government began trying to sell it two years ago, it was reckoned to have lost at least €3bn.