AF-KLM withdraw bid for Alitalia as talks with unions fail

Italian flag carrier, Alitalia's flight path to potential recovery took a nosedive as long time suitor, Air France-KLM Group, called it quits after talks with the airline's trade unions failed inspite of a two-day extension to the negotiations. The pull out by the Group comes inspite of its bid having being accepted by the outgoing government of Alessandro Prodi.

Through a statement, AF-KLM said that when it submitted its final offer for AZ three weeks ago, it "clearly indicated that [it] was contingent on prior agreement with the trade unions" representing a majority of employees. Despite making several concessions, AF-KLM said, a new proposal offered by the unions yesterday went too far as it "would involve retaining a number of activities generating large-scale losses. . .incompatible with the target of a rapid return to profit."

The Group pointed out that its plan for Alitalia "would have no chance of success unless it had the backing of the trade unions."

It pulled out of the talks late yesterday, saying it "has no mandate from its board. . .to follow up this new proposal." Chairman and CEO Jean-Cyril Spinetta said the "breakdown. . .is none of our doing. This is a project I have profoundly believed in and continue to do so, because it would have ensured Alitalia a rapid return to profitable growth."

Having backed AF-KLM's efforts to arrive at a settlement, Alitalia chairman, Maurizio Prato, subsequently resigned, according to media reports from Rome.

Meanwhile, a statement from Alitalia said, "A board meeting has been called for [Thursday] which will decide the appropriate steps." According to the statement, the contract it had signed with AF-KLM following a period of exclusive negotiation "is no longer valid."

An immediate fallout for the airline, post AF-KLM's walkout, will be the fact that the Italian government can now no longer grant the urgently needed  €300 million ($470.9 million) bridge loan requested by the airline without the AF-KLM takeover as additional state aid to Alitalia is prohibited by the European Commission.

Italy is due to elect its next government shortly and likely winner Silvio Berlusconi has already expressed his reservations  about the deal, saying that he would mount an all-Italian bid as a counter to the AF-KLM offer.