The Italian government on Tuesday was considering the possibility of a bridge loan to keep Alitalia flying after Air France-KLM withdrew its offer for the near-bankrupt national flag carrier.
Outgoing Premier Romano Prodi called a cabinet meeting for Tuesday evening to find a way out of the crisis.
According to Italian financial daily Il Sole 24 Ore, the cabinet is set to approve a decree granting Alitalia a loan of 100-150 million euros.
In a bid to avert possible European Union protests that the loan counts as state aid, the decree would be presented by the interior ministry, which would say it must ensure orderly public service, as opposed to the economy ministry, Il Sole 24 Ore reported.
The EU has forbidden further state aid to Alitalia and says any loan must be made at market conditions.
A spokesman for European Commissioner for Transport Jacques Barrot stressed on Tuesday that the EC had not been notified of any loan plan.
''The EC must be notified of any eventual financial aid and it will then decide if the measure is compatible or not with EU regulations on state aid... Alitalia already received state aid on a 'one last time' basis in 2001. That means it cannot ask for more aid until 2011,'' spokesman Michele Cercone said.
He said that if Italy went ahead with a loan without the EC's approval, then ''any rival airline can take legal action and a court could ask for the loan to be immediately frozen or reimbursed''.
Paolo Bonaiuti, spokesman for premier-in-waiting Silvio Berlusconi, said that ''a bridge loan is the only solution''.
''I hope the loan is as extensive as possible,'' said Bonaiuti, who went on to underscore a ''revival of interest'' on the part of Russian airline Aeroflot.
Aeroflot, which is the largest East European carrier and controlled by the Russian government, dropped a bid for Alitalia last year, judging union conditions excessive.
But the idea of a Russian link-up resurfaced last Friday during talks in Sardinia between Berlusconi and Russian leader Vladimir Putin.
Aeroflot said on Tuesday that it was ''re-establishing contacts'' with Alitalia but stressed that a condition of any future negotiations would be ''respect for the company's interests and those of its shareholders''.
AIR FRANCE QUITS THE SCENE.
A deal to offload the Italian Treasury's 49.9% controlling stake in Alitalia on Air France-KLM was approved by the government and the Alitalia board after several other bidders withdrew their offers.
But talks fell apart earlier this month when the carrier's nine unions refused to accept 2,100 layoffs and the company's downsizing.
Prodi has since been working to revive the negotiations, maintaining the only alternative to a deal with the Franco-Dutch buyer is receivership.
But Air France-KLM issued a brief statement on Monday saying that ''the contractual arrangements announced on 14th March with a view to launching a public exchange offer on Alitalia are no longer valid''.
Alitalia's financial situation has deteriorated since March 14.
Air France was also reported to be concerned about rising oil prices, which spell further problems for Alitalia and its ageing fleet.
Berlusconi, who won a third term in power in Italy's April 13-14 general election, said before the vote that he would reject an Air France-KLM takeover, preferring an all-Italian solution.
He repeatedly said an Italian consortium was ready to fend off an Air France-KLM takeover, even saying at one point that his own children were willing to join a rescue consortium, a statement he later backed down on.
A key Berlusconi ally, the populist Northern League, is also hostile to a foreign tie-up.
Berlusconi has since softened his line, saying last week that he would consider a deal with Air France-KLM as long as all partners were on an equal footing.
Then on Friday, the centre-right leader said Aeroflot could play a part in Alitalia's future, even if it were taken over by Air France.
The centre left subsequently accused Berlusconi of ''wrecking'' the deal with Air France.
The Democratic Party led by defeated candidate for premier Walter Veltroni said that ''rash statements and irresponsible behaviour have sunk the talks with Air France, putting the future of Alitalia and tens of thousands of workers at risk''.
The centre right responded by saying that Prodi's government had mishandled the talks with Air France and wrongly focused on only one possible buyer.
Trading in Alitalia shares was suspended on Tuesday pending the release of a statement.
In Paris, shares in Air France-KLM opened up 1.7% at 19.65 euros.
Alitalia has debts of around 1.5 billion euros and is losing some one million euros a day.
