EU To Suspend Italy's Loan To Alitalia - Report

June 4, 2008

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The European Commission has decided Italy's EUR300 million euro (USD$467.9 million) emergency loan to Alitalia is illegitimate state aid and must be suspended, newspaper la Repubblica reported on Wednesday.

The Commission will formally open a procedure against Italy on June 11, the newspaper wrote, without citing its source.

The loan, granted in April by Italy's previous government, was aimed to keep the airline flying while incoming Prime Minister Silvio Berlusconi tried to gather Italian investors to save it from bankruptcy.

Those investors have not materialized, meaning the airline will come under renewed financial pressure if the loan is thrown out by the Commission.

After the Commission's decision is announced, Italy will have 15 days in which to tell the EU executive how it intends to proceed, la Repubblica wrote.

Milan's bourse on Wednesday suspended trading in Alitalia shares, convertible bonds and other financial instruments tied to the company. The bourse had limited trading in the stock, which on Tuesday closed at 0.44 euros, for several weeks to a single daily auction.

After campaigning against the previous government's plans to allow Air France-KLM to take over Alitalia, newly-elected Berlusconi softened his stance on Tuesday saying Air France may be a good international partner for Alitalia.

However, Air France-KLM has said restarting talks would be difficult. It withdrew a takeover offer for Alitalia in April because of union opposition and political pressures.

Berlusconi's new conservative government last week launched the third attempt in 18 months to find a buyer for the airline, which loses more than EUR1 million a day.