Alitalia to make administration decision tomorrow

Alitalia bought time, postponing to tomorrow, a key decision on whether to ask for protection from creditors with the government scrambling to keep it flying despite a looming cash crisis.

By that date Alitalia "will evaluate the existence of the necessary conditions to continue doing business," the board said after a seven-hour meeting.

Italy's stock market announced the airline's shares would remain suspended until tomorrow, when the board next meets.

Alitalia said it remained in favour of a takeover plan by Air France-KLM despite the French carrier's decision to back out of talks on Wednesday saying the demands of Alitalia's unions were unacceptable.

State-controlled Alitalia, whose fate has become a top campaign issue ahead of Italy's general election in 10 days time, has said its cash will run out soon unless a new owner steps in to pump more money into its coffers.

Italy's government said in a statement it would verify if Air France-KLM's decision to back out was final and committed itself to keeping its national carrier in operation.

The EU has banned further state aid, but the government can put Alitalia under emergency administration, which would allow it to operate with protection from creditors - roughly similar to US bankruptcy procedures.

Italy's economy minister, who is overseeing the sale, and analysts say that it is Alitalia's only alternative to the French deal.

"Alitalia is no longer able to stand on its own two feet," said Edoardo Staunovo Polacco, a bankruptcy law lecturer at Bocconi University. "Either it must be saved by another party or it is inevitable it will go into special administration. It doesn't have any more money and cannot get any from the state."

Once a proud symbol of Italy's post-war economic boom, Alitalia has been felled by tough competition, soaring fuel prices and frequent labour strikes. It has posted a profit only four times in the past 15 years.

The board of Alitalia, in which the Italian state has a 49.9 per cent stake, replaced former chairman Maurizio Prato, who resigned on Wednesday, with law professor Aristide Police.

Unions and politicians remained hopeful the airline could avert bankruptcy and resume talks with Air France-KLM.

Eight unions said in a joint news conference they were willing to enter talks with anyone, including Air France-KLM.

"Air France-KLM did not have an attitude of complete closure," said Filt-Cgil union's Fabrizio Solari, adding the unions were ready for sacrifices to keep the company flying.