Italy in last-ditch attempt to keep Alitalia flying

Italy's lame-duck government meets the Alitalia unions tomorrow morning in a last-ditch effort to persuade them to change their minds and accept Air France-KLM's €140m (£112m) offer.

Romano Prodi, outgoing Italian Prime Minister, has been telling anyone who would listen for more than a year that Alitalia was in terminal trouble and finally the message is sinking in. But with a general election at the weekend and Silvio Berlusconi's People of Liberty coalition looking a good bet to win it, it is unlikely that tomorrow's meeting will lead to a radical rethink by the unions.

It was on 14 March that Alitalia presented its offer for the company, which was far less favourable than company and unions had expected. The offer valued the company at about €0.10 per share compared to its closing share price of €0.53. After the offer was made public the share price went into a tail spin and trading is currently suspended.

The offer also required the cutting of 1,600 jobs among pilots, crew and ground staff, out of a total of 11,000 employees. No guarantees were given for the future of Alitalia Servizi, the maintenance firm part-owned by the carrier and which has 8,300 employees.

Alitalia is losing around €1m a day, but political demands to save the national carrier and the jobs, and the political weight of the dozen-odd unions, have led successive governments to put off dealing radically with the firm's problems and instead keep it hobbling along with further injections of cash. But with Air France-KLM's brutal recipe for survival, reality finally dawned.

Luckily, Silvio Berlusconi was on hand to ensure that it did not dawn for very long. The media magnate and two-time prime minister galloped to the rescue, condemning Air France's offer for the company as "arrogant and unacceptable" and urging "patriotic" Italian businessman to step forward and save Alitalia for the nation.

"Even Greece and Portugal have national airlines," he declared. "One can't just give up Alitalia. I've been silent until now, but I spoke up when I saw the unacceptable conditions."

In the first flush of enthusiasm he hinted strongly that he himself would be the firm's saviour, along with his children and other members of the family, backed by unspecified Arab investors "ready to help" with minority stakes.

But coming in the heat of the election campaign, Mr Berlusconi's intervention had a strong whiff of cynical grandstanding about it, and he quickly distanced himself from the idea that he might save Alitalia in person. As politicians and businessmen have admitted, sadly, Air France is the only show in town. "If there were Italian businessmen capable of saving Alitalia," reasoned Christian Democrat leader Pier Ferdinando Casini, "why didn't they come forward earlier?"

But Mr Berlusconi's former foreign minister and deputy-prime minister Gianfranco Fini also came out against the plan, as did Letizia Moratti, mayor of Milan and Berlusconi's former education minister. In the Air France plan, Milan's Malpensa airport is to cease to function as Alitalia's second hub alongside Rome's Fiumicino airport. The city of Milan is a major shareholder in SEA, the firm that owns both Milan's airports, and SEA is suing Alitalia for €1.25bn for not keeping its promise to maintain Malpensa as a hub.

The upshot of all this was that the unions rejected the Air France deal. In response last Wednesday, Air France walked away from the negotiations and the same day Alitalia's chairman Maurizio Prato, the third in a year, resigned. "Alitalia is cursed," he said in parting, "only an exorcist can save it."

All avenues to the firm's salvation now appear blocked. Italy has spent about €4.3bn propping the firm up over the past five years, but the EU has barred it from giving any more; the putative Italian white knight has yet to show up. Meanwhile, some politicians have begun to think the unthinkable. Letizia Moratti said, "Air France has put forward such outrageous proposals that I doubt that they really want to buy Alitalia. Before arriving at bankruptcy it is obligatory to search for another solution. But bankruptcy would not be a catastrophe."