Alitalia reaches deal with unions to split firm

ROME (Reuters) — Italy's loss-making Alitalia has reached a deal with most of its unions to split the state-controlled airline in two, hoping the plan will secure its immediate future and open the way for partial privatization.

But initial optimism about the agreement was clouded when a union representing flight attendants and ground staff, one of nine unions at Alitalia, said it opposed the division and called on its members to vote on the issue.

European Commission experts were also waiting in the wings to scrutinize the accord which competitor British Airways believes might breech rigid state aid rules.

At the heart of the deal were guarantees that the Italian state, which owns 62% of Alitalia, would keep a strong presence in the divided units following a capital increase.

Friday's deal came days after unions had agreed to 3,700 job cuts, representing just over a sixth of the total workforce, which management saw as vital to the company's plans to reverse 5 years of operating losses and declining market share.

Guglielmo Epifani, head of Italy's largest union, the CGIL, told state radio that the deal was a "miracle."

But the SULT union, which represents 2,400 flight attendants and ground staff, rejected the plan and called a ballot of its members. It was not immediately clear whether opposition by the SULT union would jeopardize the whole project.

Alitalia shares, which have rallied strongly this month, were up 1.5% at 0.287 euros at 1300 GMT, off opening highs.

Cimoli wants to split Alitalia to shift some 1.6 billion euros ($1.97 billion) of debt to the ground operation to leave the airline division, AZ Fly, financially solid and ready for the cash call that will cut the state's majority holding.

Unions had initially balked at the idea because of concerns that it would lead to more job losses.

But most union leaders dropped their opposition when Cimoli presented guarantees that the state would retain a minimum 30% stake in AZ Fly and only sell shares to institutional investors in the forthcoming capital increase.

In turn, AZ Fly would initially keep 100% control of the ground arm, AZ Service. At a later date, this stake will fall to 51%, while a publicly owned company would take the other 49%.

This tight shareholder set-up would last until at least 2008, the Alitalia statement said.

On Thursday, Cimoli warned that Alitalia would have just 20 million euros ($25 million) of cash left by the end of September unless it secured a union deal to unlock a government-backed bridge loan worth 400 million euros.

With most unions on board, Cimoli will look to gaining access to the cash and hope to win over any doubters in Brussels.

British Airways, Europe's second-largest airline, has already called on the European Commission to reject the deal, arguing that the plan to load debt into AZ Service and then sell it to a state-controlled firm was a form of state aid.

European Commission spokesman Amador Sanchez Rico said on Friday that the EU executive has not been informed officially by Italy of the plan and declined to comment until then.

"We will study all the modalities of this new plan and then the Commission will take a decision," he said.

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