Alitalia seeks bankruptcy protection, rescuers ready

By Deepa Babington

ROME (Reuters) - Alitalia (AZPIa.MI: Quote, Profile, Research) sought bankruptcy protection on Friday after nearly two years of hunting for a buyer, paving the way for its rescue by a group of Italian investors in a coup for Prime Minister Silvio Berlusconi.

The long-awaited move by the national airline after 61 years of flying popes and movie stars during Italy's "Dolce Vita" glory days sets it up for a less glamorous rebirth as a smaller airline focused on domestic and European routes.

Alitalia has not posted a profit since 1999 as it faced competition from low-cost carriers, strikes and inefficiencies. But it controls the lucrative Milan-Rome route, and its healthy units will be sold to 16 Italian investors including Intesa Sanpaolo.

"Alitalia is a company that has accumulated many errors, many losses, many conflicts," said Intesa Sanpaolo Chief Executive Corrado Passera, who drew up the rescue plan. "It's in difficulty but has resources within that can be revived, used and relaunched."

"The next four weeks will be crucial," Passera said.

The airline's debt and its ground service unit will be liquidated, and the state will likely absorb the losses, sparking an outcry from consumer groups and the opposition who say Italians will end up paying for Alitalia's rescue.

The government holds a 49.9 percent stake in the airline.

Alitalia, which had 314 million euros in cash and more than 1.17 billion euros in debt as of July, said in a statement that it had applied for insolvency in a Rome court under a new process for "public service" companies.