Italy vows to keep Alitalia flying despite crisis

By Jo Winterbottom and Deepa Babington

MILAN/ROME (Reuters) - Italy's government scrambled to salvage Air France-KLM's collapsed deal to buy Alitalia AZP Ia.MI on Thursday, promising to keep the airline flying despite a looming cash crisis.

The state-controlled carrier, whose fate has become a top campaign issue ahead of Italy's general election in 10 days time, has said its cash will run out in a few months unless a new owner steps in to pump more money into its coffers.

The Italian government said in a statement on Thursday it was committed to ensuring Alitalia stayed in operation, while the economy ministry overseeing its sale urged the airline's board to take urgent action to ensure it keeps flying.

Once a proud symbol of Italy's post-war economic boom, Alitalia has been felled by tough competition, soaring fuel prices and frequent labour strikes. It has posted a profit only four times in the past 15 years.

The board of Alitalia, in which the Italian state has a 49.9 percent stake, was scheduled to meet at 12.00 p.m. British time. Its chairman Maurizio Prato quit on Wednesday saying the company was cursed.

"Alitalia is no longer able to stand on its own two feet," said Edoardo Staunovo Polacco, a bankruptcy law lecturer at Bocconi University. "Either it must be saved by another party or it is inevitable it will go into special administration. It doesn't have any more money and cannot get any from the state."

Some unions and politicians remained hopeful the airline could avert bankruptcy and resume talks with Air France-KLM, which abandoned negotiations with unions on Wednesday after rejecting their demands aimed at saving more jobs.

The Italian government said it would verify whether the French carrier's decision to ditch the deal was final, while Alitalia management summoned unions for a meeting on Friday.