Italian government sanctions bridge loan for Alitalia as AF-KLM withdraw from the fray

With Air France-KLM formally withdrawing their offer to acquire embattled Italian flag carrier Alitalia, the outgoing Italian government yesterday approved a €300 million ($475.7 million) loan with a view to prevent the cash-strapped airline from going bankrupt before newly elected prime minister Silvio Berlusconi succeeds in lining up new investors.

The loan will likely invite the wrath of the European Commission regulators who had specifically directed the Italian government not to sanction any loans to the struggling carrier as they would go against European Union regulations.

Reports suggest that Alitalia will have to pay back the loan by year-end.

Air France-KLM formally withdrew its offer late Monday, saying, "The conditions precedent that had to be satisfied prior to launching were not fulfilled."

Prime minister-elect, Silvio Berlusconi, meanwhile was attempting to find fresh investors. He has invited original suitor, Aeroflot, to re-bid for the Italian government's stake in the carrier. The Russian flag carrier and AirOne financier, Intesa Sanpaolo, have expressed cautious interest, according to reports.

So far, EC spokesperson have declined comment.