Alitalia faces liquidation as buyers pull out

By Alberto Sisto

ROME (Reuters) - Italian airline Alitalia faced the prospect of liquidation after a business group that had mounted a rescue bid withdrew its offer on Thursday, citing union opposition.

All members of the CAI consortium voted to abandon the offer -- a blow to Prime Minister Silvio Berlusconi, who had used his business connections and political sway to persuade investors to bid for the 20,000-employee flag carrier and keep it Italian.

"The situation is dramatic and we could be facing the abyss," Berlusconi told reporters, adding that left-wing opposition and unions were to blame. Asked whether this meant Alitalia's failure, Berlusconi said: "We'll see."

The breakdown came a day after Greece said it would close Olympic Airlines and relaunch it as a private-sector company. Airlines are struggling to cope with soaring fuel costs and declining revenues as the credit crunch crimps spending.

Alitalia's government-appointed special administrator Augusto Fantozzi has repeatedly warned that if CAI's bid fell apart, he would start liquidation proceedings.

However, Fantozzi appeared more cautious on Thursday, saying he would begin the difficult task of seeking new funds for Alitalia and "do everything possible to keep it alive."

A 300 million euro (237 million pound) bridge loan granted to the company by the previous centre-left government is being questioned by the European Commission as possibly illegitimate state aid.

CAI said it had pulled its offer after six of Alitalia's nine unions refused to sign up for the plan, which would have seen the group snap up only the profitable parts of the carrier.