Air France-KLM deal to buy Alitalia falls apart

By Alberto Sisto and Deepa Babington

ROME (Reuters) - Air France-KLM's takeover of Italy's Alitalia fell apart on Wednesday after talks with unions broke down, leaving the state-owned airline on the ropes just 11 days before a general election.

Alitalia -- once a proud symbol of Italy's post-war economic boom -- now risks bankruptcy and its fate has become a top political issue.

"This company is cursed: only an exorcist can save it," Alitalia Chairman Maurizio Prato was quoted by unions as saying after the negotiations collapsed. Alitalia later said he had resigned.

Air France-KLM, long considered Alitalia's best hope of reviving its fortunes, said conditions did not exist for further talks but that it continued to believe in the project.

Alitalia, which loses one million euros a day and has a net debt of 1.37 billion euros (1 billion pounds), said it needs a cash injection by mid-year to keep flying.

Italy's outgoing centre-left government, which is trying to sell its 49.9 percent stake in the carrier, had approved the takeover two weeks ago. But the deal soon ran into resistance from unions, poll favourite Silvio Berlusconi and Milan's airport operator.

Air France-KLM CEO Jean-Cyril Spinetta flew back to Paris -- on an Alitalia jet -- on Wednesday after rejecting union demands to take on the airline's ground service unit, speed up plans to buy new planes and keep its cargo unit open, union sources said.

The world's largest airline said in a statement Spinetta regretted the breakdown.