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Etihad and Alitalia tie-up deal enters home straight

An Alitalia plane is parked on the tarmac at Fiumicino international airport in Rome December 10, 2013. REUTERS/Max Rossi
An Alitalia plane is parked on the tarmac at Fiumicino international airport in Rome December 10, 2013. REUTERS/Max Rossi

By Stanley Carvalho

ABU DHABI (Reuters) - Etihad Airways and Alitalia are in the final phase of due diligence for a possible investment by the Abu Dhabi carrier in the troubled Italian airline, the companies said on Sunday.

Italian Prime Minister Enrico Letta, in Abu Dhabi on a visit to encourage investment in Italy, said he had high hopes for a deal and is "flexible" over the possibility of a change in Alitalia's management.

Alitalia and Etihad have been in talks for weeks on a possible investment by the Gulf carrier, which sources close to the matter say could involve Etihad buying a 40 percent stake for as much as 300 million euros ($404.6 million).

"I am very happy with the announcement; we have worked for this outcome," Letta told reporters, though he declined to comment on the size of Etihad's investment.

The two companies and their advisers will determine a common strategy that meets the objectives of both parties in the next 30 days as they seek to move Alitalia to sustained profitability, the joint Alitalia and Etihad statement said.

Alitalia offers access to Europe's fourth-largest travel market and flies 25 million passengers a year, but it had net debt of more than 800 million euros at the end of last year and is losing 700,000 euros a day.

A tie-up with the Gulf carrier, however, could bring a vital source of liquidity and the resources to invest in a new strategy focused on long-haul routes.

Letta, whose fragile coalition government engineered a 500 million euro emergency rescue to keep Alitalia flying while it searched for partners, has much at stake politically in the effort to save Italy's historic flag carrier.

The airline employs 14,000 people and is regarded as a strategic national asset.

"We are very much flexible in the discussions because we know we can trust Alitalia and Etihad. They know the business," Letta said when asked if a deal could lead to a change in Alitalia's management.

'IMPORTANT STEP'

Alitalia Chief Executive Gabriele Del Torchio described Sunday's announcement as "an important step in creating a solid and competitive Alitalia".

The head of Italy's main employers' lobby Confindustria also welcomed the news. "A strategic alliance with a strong group that is willing to invest and doesn't sideline our country is a positive development," Giorgio Squinzi said.

Alitalia successfully completed a 300 million euro capital hike in December, which analysts said would keep it flying for six months. But a decision by its former top shareholder and partner Air France not to subscribe to the emergency cash call left the Italian carrier searching for another partner to help revive its fortunes.

For Etihad, a stake in Alitalia would further its effort to expand its global reach through strategic holdings in other airlines. It has already bought minority stakes in several carriers, including Air Berlin , Virgin Australia and Aer Lingus .

Alitalia has promised to avoid permanent job cuts as part of a restructuring presented to labor unions in December, though the airline has said it needs to save 128 million euros in labor costs, equivalent to 1,900 job cuts.

At a meeting with labor unions on Saturday, Alitalia agreed to use so-called "solidarity contracts", whereby people work less and are paid less, rather than a more controversial temporary layoff scheme. ($1 = 0.7415 euros)

(Additional reporting by Praveen Menon, Isla Binnie, Regan Doherty and Gavin Jones; Editing by Catherine Evans and David Goodman)

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