Berlusconi Battles to Save Alitalia As Cai Rescue Bid Fails

Silvio Berlusconi, Italy's Prime Minister, is desperately trying to save national flag carrier airline Alitalia from collapse this weekend after a consortium withdrew its rescue offer on Friday, following opposition from trade unions over planned job cuts.

Executives say that, unless a solution can be found, the Italian civil aviation regulator could ground the airline's 178 aircraft on safety grounds, amid reports that Alitalia can no longer afford essential spare parts. But the company, crippled by high fuel costs, insists it has sufficient funds to keep the airline intact.

However, on Friday, Alitalia canceled a number of flights from Rome's Fiumicino airport. Officials tried to calm the situation by saying the cancellations were because of technical problems, and not linked to running out of fuel.

Andrew Lobbenberg, an analyst with RBS, said big network carriers such as BA would benefit on long-haul flights if Alitalia went down, while EasyJet and Ryanair would pick up short-haul and domestic business. Both no-frills airlines operate in Italy.

If Alitalia were to fall, it would be the biggest airline collapse in Europe since the demise of Swissair in 2001. But industry sources say that the CAI consortium, which pulled its offer last week, has a plan to re-establish a new, much smaller airline called Air Italy from scratch, in the event that Alitalia fails.

The Italian government, which has a 49 per cent stake in Alitalia, has been trying to get rid of the loss-making, debt-laden operator since December 2006.