Italy pulls out stops to grant loan to Alitalia

By Deepa Babington and Alberto Sisto

ROME (Reuters) - The Italian government scrambled on Tuesday to put together an emergency loan for Alitalia that would pass the European Commission's test and keep it flying after Air France-KLM ended its pursuit of the carrier.

With Alitalia expected to run out of cash within a matter of weeks or a few months at most, Italy's incoming and outgoing administrations are heading a rare bipartisan effort to keep the national carrier in the air until a new buyer is lined up.

Air France-KLM's deal to buy Alitalia came apart earlier this month over union opposition, but the French carrier formally withdrew its offer late on Monday -- its strongest signal yet that it has little intention of restarting talks.

That gives Silvio Berlusconi his first big headache since winning last week's election -- finding a way to funnel cash to the carrier without angering the European Commission, which has threatened court action over any further state aid for Alitalia.

Outgoing Prime Minister Romano Prodi held talks on Tuesday with top officials and plans a cabinet meeting at 1630 GMT to discuss a bridge loan to keep Alitalia afloat until its fate is settled, a government source said.

Prodi's office in a statement confirmed a cabinet meeting to discuss the "Alitalia question." Shares of the state-controlled airline were suspended from trade in Milan.

Italian media say the loan could be worth about 150 million euros and business daily Il Sole 24 Ore said reasons of "public order" would be cited to defend it from EU objections.

Outgoing Industry Minister Pierluigi Bersani said the loan would be an "emergency measure" and in line with European rules.