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Alitalia seeks capital hike, Air France-KLM votes against: source

An Alitalia plane passes an Air France plane on the tarmac of Charles de Gaulles International Airport in Roissy near Paris, January 8, 2013
An Alitalia plane passes an Air France plane on the tarmac of Charles de Gaulles International Airport in Roissy near Paris, January 8, 2013

By Alberto Sisto

ROME (Reuters) - Struggling Italian carrier Alitalia will seek a capital increase of at least 100 million euros ($135 million), it said on Thursday after reporting another heavy loss for its first half.

But its top shareholder Air France-KLM , which holds a 25 percent stake, voted against the capital hike proposal, a source close to the matter said. The Franco-Dutch group declined to comment.

Alitalia, which has struggled to make a profit throughout its life and was bailed out repeatedly by the Italian state before being privatized in 2009, again faces a cash crunch.

Its net loss for the first six months was 294 million euros, on top of losses of more than 840 million euros the group had already accumulated since its privatization in 2009.

Analysts said it needed a sizeable cash injection and a strong foreign partner.

"The shareholders will be called to approve a capital increase of no less than 100 million euros," the company said. It did not specify the terms of the capital increase, which usually includes a share issue.

"With this capital hike they are just buying time, but it doesn't really solve the problem," said Andrea Giuricin, a transport analyst at Milan's Bicocca University.

"First they need to find the money to recapitalize."

A shareholder meeting to debate the capital increase was called for October 14, and the board will meet again next Thursday.

Shareholders are also asked to underwrite the remaining 55 million euros of a 150 million euro convertible loan Alitalia's board approved in early 2013 and to approve a mandate to seek bank financing for another 300 million euros.

The airline said net debt at the end of June stood at 946 million euros, while liquidity was equal to 128 million euros.

DEVELOPING ROME HUB

Alitalia's once ambitious plan to become a strong regional player has failed in the face of tough competition from low-cost carriers, high-speed trains and lower demand for air travel.

Recently appointed CEO Gabriele Del Torchio, a turnaround specialist, has already outlined a new plan to focus on the more lucrative long-haul market, but he desperately needs cash to buy the larger aircraft needed for inter-continental flights.

The company says the new strategy will help it to break even in 2015 and return to profit in 2016.

Italy was betting on Air France-KLM raising its stake, possibly even taking control of the company, but any such commitment may clash with Italy's own ambition to make Rome a transport hub for intercontinental flights.

Industry Minister Flavio Zanonato on Thursday said Italy was working with banks to find a temporary solution to put the company in a stronger financial position first rather than leaving it at the mercy of an Air France-KLM bid that would ultimately hurt Rome's own transport priorities.

"Alitalia shouldn't get into a situation where it is weak and has to accept whatever terms are offered because it has no negotiating power," Zanonato told reporters in Brussels.

Air France-KLM already operates two hubs out of Paris and Amsterdam and may want Alitalia to support its own network rather than develop Rome as an additional hub in Europe, analysts say.

Italy's transport minister told his French counterpart at a separate meeting in Paris that Rome was not opposing a stronger Air France-KLM involvement, but only under the condition that it would not affect Alitalia's new strategy and jobs.

In the absence of other bidders, Italy's bargaining power may be limited. Etihad Airways, mentioned by Italian media as a possible partner, has distanced itself from the struggling carrier for now and is focusing on a deal in India instead.

The Alitalia board was told by a bank adviser of possible interest from China, Russia and the United Arab Emirates to acquire a stake, a board member said.

However, similar reports have emerged in the past without coming to fruition, and time is running short for Alitalia.

Analysts said the airline requires an injection of about 500 million euros, with more needed to sustain its ambitions on long-haul routes. ($1 = 0.7418 euros)

(Additional reporting by Agnieszka Flak in Milan, Matthias Blamont and Geert de Clercq in Paris and Francesco Guarascio in Brussels; Writing by Agnieszka Flak and Anthony Barker)

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