Alitalia will press on with talks to secure a definite deal with Etihad Airways, the Italian airline's board decided at a meeting on Friday, having welcomed the rescue plan proposed by the Gulf carrier.
Italy's flagship carrier was kept afloat by a government-engineered €500m ($680m) rescue package last year but risks having to ground its planes unless a deal can be struck with Etihad to give it the cash to invest in long-haul routes and planes.
Etihad, which already has stakes in Air Berlin and Aer Lingus, is looking to invest more than €500m in exchange for a 49 percent stake in Alitalia, sources close to the talks have said.
Alitalia's board on Friday "expressed appreciation" for Etihad's proposals, which government sources say include plans to make the Italian carrier profitable by 2017. The board then mandated the airline's chairman and chief executive to finalise a deal.
The two carriers have been in talks since December, but a deal has so far been elusive due to Italy's reluctance to bow to Etihad's strict demands for heavy job cuts and a tough restructuring of the Italian airline's debt.
However as Alitalia is expected to run out of cash by August, sources said the company, Italy's government and unions have little choice but to accept a deal on Etihad's terms.
Etihad still needs to secure an agreement with Alitalia's creditors, mainly Italy's top two lenders Intesa Sanpaolo and UniCredit, on how to restructure around €700m of the airline's debt.
"The negotiations with the banks are still going on," Tommaso Di Tanno, a member of the board of statutory auditors, told reporters outside the Alitalia board meeting.
The banks have already expressed their basic support to Etihad's rescue plan, sources close to the talks have said, although details of the debt restructuring still need to be defined. Options proposed include the banks writing off parts of the debt and converting the remainder into equity.
Unions also need to agree to proposed job cuts, which Italy's labour minister Giuliano Poletti said this week could be as high as 2,500, almost a fifth of the total workforce. Part of the cuts would be covered by state-sponsored layoff schemes.
Alitalia called a meeting with unions for June 12, a union source said.
While unions have stalled talks with other foreign bidders in the past, they have signalled their willingness to negotiate this time to avert the risk of Alitalia going bankrupt.
But they insist on assurances from Rome that layoff schemes and early retirement plans would be put in place to limit the social impact of job losses.
The talks have been closely followed by Italy's government, which considers the airline a strategic national asset given its large workforce and as it seeks to ensure that Italy's stretched geography is served with sufficient transport links.
Transport Minister Maurizio Lupi welcomed the mandate for Alitalia's leadership to conclude the talks, saying it showed Italy was again attracting foreign capital.
"Now let's get on with it quickly!" he said on Twitter.
Alitalia's board will again meet on June 13 to approve the company's long-delayed financial results for last year. In 2012, the company reported a net loss of €280m.
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