The Italian government will give Alitalia a EUR300 million euro (USD$475 million) emergency loan, risking the ire of the European Commission, as it tries to avoid bankruptcy at the airline after Air France-KLM dropped its bid.
Outgoing Prime Minister Romano Prodi said on Tuesday the figure had been requested by his successor, Silvio Berlusconi, in order to have time to sort out alternatives.
With the state-controlled carrier expected to run out of cash in a few months, Italy's incoming and outgoing administrations are heading a rare bipartisan effort to keep the national carrier in the air until a new buyer is found.
Air France-KLM formally withdrew its offer on Monday, dealing a final blow to the deal, which fell apart this month over union opposition.
That gave Berlusconi his first big headache since winning last week's election -- finding a way to funnel cash to the carrier without angering the European Commission, which has threatened court action over any further state aid for Alitalia.
Prodi said his cabinet agreed the EUR300 million bridge loan that must be reimbursed by the end of the year. The loan should allow Alitalia to stave off bankruptcy in the short-term and give it breathing space for a few months.
Business daily Il Sole 24 Ore had said reasons of "public order" would be cited to defend the loan from EU concerns.
A European Commission spokesman said it was too early to comment on the loan and that Brussels needed to study the details first. But the Commission had earlier warned any decision on aid without approval from Brussels first could end up in court.
"We are ready to give a quick green or red light to any loan, but what would be very serious and very damaging would be if Italy decided to go ahead with the loan first and then decide to inform us," an official familiar with the matter said.
"But if Italy takes this road or cannot justify the loan, then make no mistake the Commission will come down very hard and will move as quick as possible."
Italy's economy minister, Tommaso Padoa-Schioppa, said he hoped the European Union would take into account that Italy's next government is confident of finding an alternative to the failed takeover by Air France-KLM.
Also on Tuesday, the European Commission's president said an Italian may soon take over as its next transport commissioner -- a job which would include overseeing the EU executive's dealings with Alitalia.
Commission President Jose Manuel Barroso announced the potential reshuffle in the event that Italy's Franco Frattini quits his post as EU justice and security commissioner to join Berlusconi's cabinet, as expected.
Alitalia shares will return to limited trading on Wednesday, with one price set at the end of the session, after they were suspended on Tuesday pending the government's decision.
Analysts had considered the Franco-Dutch deal Alitalia's most viable option of avoiding bankruptcy, despite speculation of a rival bid.
Berlusconi has talked of a bid by an Italian consortium, but so far none has emerged. He also suggested talks with Russia's Aeroflot after hosting the Russian president last week but the airline -- which dropped out of a previous attempt at selling Alitalia -- has sounded cautious.
"Aeroflot treats with understanding an instruction given by President Vladimir Putin," an Aeroflot spokesman said.
"We are expecting the Italian side to invite us to talks. However, Aeroflot will be guided (in its decision making) ... purely by pragmatic reasons and interests of investors."
Alitalia has convened its unions for a Thursday meeting, a union source said.
Quoting sources at Air France headquarters in Paris, Le Monde said the company had definitively given up on buying Alitalia due to economic rather than political reasons. It cited Alitalia's exposure to high oil costs as a particular concern.
It said Alitalia had not hedged its oil purchases and that the price of aviation fuel had risen almost 35 percent since Air France-KLM drew up its original takeover plan in February.
