Alitalia deal falls apart as chairman quits

Air France-KLM's takeover of Italy's Alitalia fell apart after talks with unions broke down, leaving the state-owned airline on the ropes just 11 days before a general election.

Alitalia - once a proud symbol of Italy's post-war economic boom - now risks bankruptcy and its fate has become a top political issue.

"This company is cursed: Only an exorcist can save it," Alitalia chairman Maurizio Prato was quoted by unions as saying after the negotiations collapsed on Wednesday. Alitalia later said he had resigned.

Air France-KLM, long considered Alitalia's best hope of reviving its fortunes, said conditions did not exist for further talks but that it continued to believe in the project.

Alitalia, which loses one €1million a day and has a net debt of €1.37 billion, said it needs a cash injection by mid-year to keep flying.

Italy's outgoing centre-left government, which is trying to sell its 49.9 per cent stake in the carrier, had approved the takeover two weeks ago. But the deal soon ran into resistance from unions, poll favourite Silvio Berlusconi and Milan's airport operator.

Air France-KLM chief executive officer Jean-Cyril Spinetta flew back to Paris - on an Alitalia jet - on Wednesday after rejecting union demands to take on the airline's ground service unit, speed up plans to buy new planes and keep its cargo unit open, union sources said.

The world's largest airline said in a statement Mr Spinetta regretted the breakdown.

Italy's economy minister overseeing Alitalia's sale earlier warned the only alternative to the deal was emergency administration - broadly similar to US Chapter 11 proceedings - in which an administrator decides whether the company can continue operations.

The leader of Italy's biggest union, Guglielmo Epifani, called the talks collapse "a defeat for the whole country".

Despite Alitalia's history of losses and frequent strikes, its dominance of the lucrative Milan-Rome route makes it an attractive asset for Air France-KLM.

The Franco-Dutch airline, which planned to cut 2,100 jobs at Alitalia with more redundancies at its ground service unit, had made union approval and support from Italy's next government a condition for wrapping up the deal.

Alitalia, which has a workforce of around 19,000, has warned its precarious finances could not withstand delays to talks and set Wednesday as the deadline for an agreement.