The Crack of Doom for Alitalia

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An Air France plane, left, and an Alitalia plane, right, at Charles de Gaulle airport, outside Paris, France

Imagine a video of a plane hurtling toward the ground — and then suddenly someone hits the pause button. That may be the best metaphor for the financial disaster that currently is Alitalia, the Italian carrier that is this close to bankruptcy.

The breakdown of negotiations for Air France-KLM to buy Alitalia has left the Italian airline closer than ever to bankruptcy. On Thursday evening, the Milan stock exchange announced that Alitalia shares will be suspended until April 8, following the public company's next board meeting. The failure of talks with Air France, also prompted yet another resignation at the top, as Alitalia chairman Maurizio Prato stepped down just seven months after taking over the troubled air carrier with the goal of facilitating its sale. Now, nothing is likely to move until after Italy's April 13-14 national elections.

The French-Dutch Air France-KLM was the only bidder left in an auction that began 15 months ago when Italy's Economy Ministry put its 49.9% of the debt-saddled company on the auction block. Air France Chairman Jean-Cyril Spinetta pulled out after Alitalia union representatives arrived at the table with brand new 11th hour terms after all sides had worked for weeks on a standing framework that included layoffs of around 2,100 and the closing of Alitalia's cargo division. The talks, of course, collapsed.

One U.S.-based airline industry consultant, with regular business in Europe, says Alitalia is the victim of its country's broken politics — and the complacency of ordinary Italians. "Alitalia doesn't know how to get out of this situation," he says. "It has never been anything but a state-owned and operated — and subsidized — airline. And the taxpayers have continued to put up with it."

Losing more than $1.6 million a day, Alitalia said in February that its cash reserves had dropped to $263 million. With money rapidly running out, and no good offers on the table, the board may well opt for filing bankruptcy to stave off creditors and force lay-offs and an organizational overhaul. Italian officials say most service would likely continue while the financial restructuring is underway.

Any such overhaul would bring far more layoffs than those on the table in the Air France talks. Facing the reality that the buyout may be the only hope to avert massive job losses, both Italian unions and government representatives said late Thursday that they would like to try again with Air France. But there was no immediate word from Paris.

Ultimately, the cards still rest in Rome. Indeed, Alitalia continues to be a political hot potato, which has helped make it a lemon of 21st century airline company. Italy is on the eve of national elections, and the man leading in the polls — former Prime Minister Silvio Berlusconi — announced in the middle of the campaign that he is dead set against the Air France takeover. The billionaire media mogul at first hinted that he would personally back an alternative deal, but has since retreated from that stance. He is, however, still publicly opposed to the Air France proposal.

Meanwhile, unions continue to hold sway over a critical bloc of leftist politicians who say the singular priority is to limit job cuts to a minimum. At the same time, there is another sideshow: leaders from the North and from Rome are fighting with each other over whether to keep Milan's Malpensa airport as the key international hub for the airline, or return that role to Rome's Fiumicino.

The main drama, however, remains that place stuck in mid-air. The 'play' button on the video must soon be pushed. We may soon find out if this dramatic pause has scared both the unions and Berlusconi to see the downside to total disaster — and whether the catastrophe can still be averted.