Alitalia faces liquidation as buyers pull out

ROME (Reuters) - Italian airline Alitalia faced theprospect of liquidation after a business group that had mounteda rescue bid withdrew its offer on Thursday, citing unionopposition.

All members of the CAI consortium voted to abandon theoffer -- a blow to Prime Minister Silvio Berlusconi, who hadused his business connections and political sway to persuadeinvestors to bid for the 20,000-employee flag carrier and keepit Italian.

"The situation is dramatic and we could be facing theabyss," Berlusconi told reporters, adding that left-wingopposition and unions were to blame. Asked whether this meantAlitalia's failure, Berlusconi said: "We'll see."

The breakdown came a day after Greece said it would closeOlympic Airlines and relaunch it as a private-sector company.Airlines are struggling to cope with soaring fuel costs anddeclining revenues as the credit crunch crimps spending.

Alitalia's government-appointed special administratorAugusto Fantozzi has repeatedly warned that if CAI's bid fellapart, he would start liquidation proceedings.

However, Fantozzi appeared more cautious on Thursday,saying he would begin the difficult task of seeking new fundsfor Alitalia and "do everything possible to keep it alive."

A 300 million euro (237 million pound) bridge loan grantedto the company by the previous centre-left government is beingquestioned by the European Commission as possibly illegitimatestate aid.

CAI said it had pulled its offer after six of Alitalia'snine unions refused to sign up for the plan, which would haveseen the group snap up only the profitable parts of thecarrier.

It said the airline's troubled financial situation --Alitalia is losing 2 million euros a day -- meant negotiationscould not drag on any longer.

Labour Minister Maurizio Sacconi said the withdrawal "pavesthe way for the failure of all the companies in the Alitaliagroup."

As the news broke, a leader of one of the three biggestunions said CAI's withdrawal would be "a social catastrophe."

"The company is dead and some of my colleagues want to beits undertakers," said Luigi Angeletti, head of the UIL union,referring to other unions' refusal to agree to the deal.

However, the news was welcomed with applause by manyAlitalia staffers gathered at Rome's Fiumicino airport andoutside the CAI's meeting in Milan.

"The offer didn't make any sense," said an Alitalia stewardin Rome who asked not to be named. "Why would anyone accepthaving their pay halved and ridiculous hours and conditions?People would rather go and find jobs as waiters."

Pilots' union ANPAC, which had staunchly opposed CAI's planto slash thousands of jobs and cut salaries, said more talkscould have led to a compromise.

"It's a shame. In my opinion the conditions were there fora deal. Now they (CAI) are off and we're still here with ourextremely serious problems," Fabio Berti told reporters.

NATIONAL SYMBOL

Alitalia, a national symbol for more than 60 years, haslong suffered from political interference and union unrest and,more recently, from soaring fuel costs and an economic downturnstinging the travel sector worldwide.

Even Pope Benedict, who like his predecessors fliesAlitalia on trips abroad, said he was praying for the airlinelast week.

CAI's rescue plan was the third attempt in less than twoyears to sell the state's 49.9 percent stake in the airline,which last posted a profit in 1999.

Under the former center-left government last year, AirFrance-KLM agreed to buy Alitalia. But that bid was blocked byunions and opposed by Berlusconi, then leader of theopposition. He ran a successful election campaign in Aprilvowing to keep Alitalia alive and Italian.

Sources close to Fantozzi said he was in contact withDeutsche Lufthansa AG, Air France-KLM and British Airways --which he said had all expressed interest in a minority stake inAlitalia if CAI's bid had succeeded.

(Additional reporting by Phil Stewart and Gavin Jones;Writing by Silvia Aloisi; Editing by Sue Thomas)