Air France, Alitalia union talks break down - source

By Alberto Sisto and Deepa Babington

ROME (Reuters) - Takeover talks between Air France-KLM and Alitalia's unions broke down on Wednesday after the French-Dutch carrier refused to accept their demands hours before a deadline to win their support expires, a union source said.

Alitalia set a Wednesday deadline for unions to agree to the takeover or let it fall apart. The deal is already under jeopardy due to opposition from Milan's airport operator and prime ministerial candidate Silvio Berlusconi.

"This company is cursed: only an exorcist can save it," Alitalia's Chairman Maurizio Prato was quoted by unions as saying.

Air France-KLM CEO Jean-Cyril Spinetta offered to slightly revise its plans for Alitalia's fleet, maintenance and cargo units at Wednesday's meeting but the unions demanded more.

In a joint statement, eight unions asked the Air France-KLM to take on Alitalia's 51 percent stake in its troubled AZ Servizi unit, speed up plans to renew the airline's fleet and keep its the cargo alive in the coming years.

Air France-KLM abandoned the talks after refusing to accept the demands, a union source said. The French carrier's CEO Jean-Cyril Spinetta told the unions he would present their proposal to its board, but doubted it would be accepted, the source said.

Air France-KLM had previously offered to take on more ground service workers at Alitalia than initially planned, but wanted to cut the carrier's stake in the AZ Servizi to below the 51 percent level. It also planned to shut the cargo unit in 2010.

The breakdown of talks came as Italy's economy minister overseeing Alitalia's sale warned the near-bankrupt carrier's only alternative to Air France-KLM would be emergency administration, a last step before bankruptcy.