April 25, 2017 / 1:36 PM / 4 months ago

UPDATE 4-Alitalia prepares for special administration after rescue plan rejected

* Workers rejected rescue plan on Monday

* Minister rules out nationalisation, public funds

* Flight operations remain unchanged for now (Adds source comments throughout)

By Agnieszka Flak and Tim Hepher

MILAN, April 25 (Reuters) - Alitalia is preparing for special administration proceedings after workers rejected its latest rescue plan, making it impossible for the loss-making Italian airline to secure funds to keep its aircraft flying.

Workers on Monday rejected a plan to cut jobs and salaries, betting the government will be asked to call in an administrator to draft an alternative rescue plan.

Alitalia has been bailed out by Italy and private investors repeatedly over the years but Italy's industry minister on Tuesday ruled out nationalisation and public funds for the carrier.

The airline, 49 percent-owned by Abu Dhabi's Etihad Airways, has made a profit only a few times in its 70-year history and, with around 12,500 employees, is losing at least 500,000 euros ($543,000) a day.

The airline said after a board meeting it would "start preparing the procedures provided by law" and a person close to the company said the board would seek shareholder approval to request the appointment of a special administrator.

"It is not an option but a must," the person said, adding, "The board ... can only do what it has to do."

The administrator would assess whether Alitalia can be overhauled or should be wound up, before preparing industrial and financial plans for a rapid revamp, either as a standalone company or through a partial or total sale.

If all else fails, it could trigger liquidation.

The person close to the company said no offers had been received to buy either all or part of Alitalia.

A shareholder meeting to decide on the next steps, initially announced by the company for Thursday, will be held on May 2, two sources close to the matter told Reuters.

STILL FLYING

Alitalia's flight operations remain unchanged for now, the company said in a statement.

The airline has sufficient funds to keep flying for "a matter of weeks, two to three weeks," partly by calling in unpaid invoices, the person close to the company said.

Vice Chairman James Hogan said that the outcome of the ballot meant "all parties would lose: Alitalia employees, its customers and its shareholders, and ultimately also Italy."

Alitalia had been seeking worker backing to unlock fresh funds from shareholders and launch an ambitious restructuring plan, centred around a revamp of its business for short- and medium-haul flights and additional long-haul routes.

"An approval ... would have unblocked a 2 billion-euro capital increase, including 900 million euros of fresh funds, that would have been used to relaunch the company," it said.

But workers had repeatedly said they were unwilling to accept any further sacrifices given Alitalia's labour costs were already among the lowest in Europe for a so-called legacy airline.

They were also sceptical over its plans to return to profit by 2019 given a string of past failed restructurings.

But the negative vote left the rescue plans in tatters, at least for now, and plunged the airline into a mood of defeat.

"Everyone is disappointed and sad. It is unbelievable," the person close to the company said. (Editing by Alexander Smith and Susan Thomas)

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