Italy denies bankruptcy plans for Alitalia

ROME (Reuters) - Italy's government on Wednesday denied plans to make Alitalia bankrupt as it came under attack from the centre-left opposition over mass layoffs expected at the troubled carrier.

The state-controlled airline is awaiting a new rescue plan from bank Intesa Sanpaolo, which is expected to suggest filing for special administration -- similar to U.S. bankruptcy -- followed by a split-off of its healthy units for investors.

An Italian news agency said the Italian cabinet would modify the bankruptcy law at an August 29 meeting to pave the way for the special administration procedure, but Prime Minister Silvio Berlusconi's office called the report "totally groundless."

The media mogul has in the past said there would be layoffs, and news agencies quoted his party's senators saying Berlusconi spoke at a Tuesday dinner of plans to cut 5,000 jobs -- or about a quarter of the airline's workforce.

The opposition immediately went on the attack over the reports, noting that his promises of a patriotic rescue for Alitalia in this year's election campaign helped thwart a deal with Air France-KLM that foresaw far fewer job cuts.

"Berlusconi talks of 5,000 job cuts while Air France-KLM planned 2,500," said opposition leader Walter Veltroni. "Earlier we had an international deal and now we have a domestic deal but we don't need solutions cooked up in ... the kitchen."

Seventy-one centre-left senators wrote to Berlusconi demanding the government address the Alitalia issue in parliament before the August recess.

GENERIC SACRIFICES

Five major Alitalia unions appealed to the government to clarify its intentions.

"The same Berlusconi that today speaks of sacrifices generically, only two months ago felled the negotiations with Air France-KLM by maintaining that sacrifices called for by the French plan were unacceptable," a joint union statement said.

Alitalia's board held an extraordinary meeting on Wednesday, but a source familiar with the meeting said Intesa representatives were not present to illustrate the bank's rescue plan as speculated by Italian media.

The board issued no statement after the meeting.

The Intesa "Phoenix" plan foresees building a new company with Alitalia's healthy units and 1 billion euros in initial capital, including 700 million euros from investors like Salvatore Ligresti and the Benettons, news agency AGI said.

One potential Alitalia investor, Gilberto Benetton, acknowledged that Italy had asked his family to support a rescue plan but he said no concrete proposal had been made.

"We have been asked to take part in the Italian tie-up and in principle we think we can give our contribution to the relaunch of the flagship airline," Benetton told Il Sole 24 Ore newspaper. "But we have yet to see an industrial plan, numbers or a concrete proposal from Intesa."

Benetton, whose family is one of the investors that stepped in with Spain's Telefonica to take control of Telecom Italia, said Alitalia still needed a foreign partner.

"It is unthinkable that the plan will be successful without the presence of an international partner willing to step in straight away, not in one or two years," he told the paper.

With British Airways Plc and Iberia now in talks to create the world's number-three airline, pressure could mount on European carriers such as Air France-KLM and Lufthansa to consolidate.

But it is not clear whether Italy's battered airline, which only remains airborne thanks to a 300 million-euro cash injection from the government, would offer any attractions.

Alitalia's financial situation has since worsened sharply and its first-half results to be announced next week are expected to show the airline has sunk deeper into the red due to high oil prices and a drop in bookings.

(Additional reporting by Jo Winterbottom and Gavin Jones; Editing by David Cowell and Braden Reddall)