Sept. 19 (Bloomberg) -- Prime Minister Silvio Berlusconi is under pressure to save national airline Alitalia SpA from bankruptcy after an Italian investor group he backed withdrew its bid.

With a total of 19,000 jobs at Alitalia and thousands of others at Italy's main airports hanging in the balance, Berlusconi, 71, is facing the biggest challenge of his four- month-old government. The prime minister's popularity rose to 60 percent, its highest since the April election, according to an IPR Marketing poll published this week, when it seemed the rescue plan would succeed.

Alitalia risks becoming the first major European flagship airline to collapse since Swissair Group and Belgium's Sabena in 2001. The company, which has been losing $3 million a day and may run out of funds by the end of this month, filed for insolvency on Aug. 29 to allow the state-backed rescue to begin.

``We may be on the edge of the abyss,'' Berlusconi said yesterday after news that the investor group, known as CAI, had withdrawn its bid for Alitalia after only three of nine unions accepted the terms of the contract they were offered.

Union leaders called on the premier to step in to save the company after CAI, led by Piaggio & C. Chairman Roberto Colaninno, backed out. Berlusconi's Cabinet met today in Rome to discuss Alitalia. Berlusconi didn't appear after the meeting.

Meeting With Unions

The Cabinet discussed the situation, according to Gianfranco Rotondi, a minister without portfolio, who said he was ``hopeful'' a solution could be found if the parties involved ``show some responsibility.''

Augusto Fantozzi, Alitalia's government-appointed bankruptcy administrator, will meet with six of the nine unions today at 5:30 p.m. at the company headquarters, a Unione Piloti union official said.

Alitalia flights are running regularly, reservations are being taken and tickets are being sold, the company said in an e-mailed statement. Still, at least 18 Alitalia flights were canceled today, according to Rome Fiumicino airport's Web site.

The government may consider a complete nationalization of Alitalia to give it time to sell off unprofitable assets and reorganize its flight business for a future sale, newspaper la Repubblica said today. Finance Minister Giulio Tremonti ruled out this option during today's Cabinet meeting, Radiocor news agency reported without citing anyone.

Funding

Fantozzi said in a letter to daily Corriere della Sera today that he's still seeking a buyer for the airline and its assets. He may get a bridge loan from Intesa Sanpaolo SpA, the Italian bank that designed and was financing the CAI rescue plan, daily Il Giornale reported today, without citing anyone.

Italy's civil aviation authority, Enac, will meet with Alitalia officials on Sept. 22 to discuss the carrier's financial position. The regulator will then determine whether to revoke Alitalia's license to operate in a week to 10 days, said Enac President Vito Riggio, according to Ansa news agency.

``Now I hope the government will start some negotiations'' with international airlines, Walter Veltroni, leader of the largest opposition party, said in a Bloomberg Television interview in New York last night. ``I would like for Alitalia to become partner of an international group'' such as Air France- KLM Group.

CAI Proposal

Aided by union opposition, Berlusconi rejected the French carrier's offer to buy Alitalia during his successful campaign for prime minister earlier this year. He insisted that the airline was too important to Italy's economy to be sold to a foreign company. Air France had said it might still be interested in buying a minority stake in the new company if CAI completed the takeover.

CAI's rescue proposal included about 3,000 job cuts and a measure requiring employees to work more hours for the same pay. Unions argued that the actual job cut total was much higher because thousands of part-time and temporary workers would be fired. Five of the unions, representing most of the 7,000 pilots and cabin crew, continued to seek concessions until a deadline for a decision expired yesterday.

``Prime Minister Berlusconi will definitely intervene,'' said Fabio Berti, head of the Anpac pilots' union, according to comments made to Ansa newswire. ``He'll have to.''

Some analysts say that Alitalia, which is already under government bankruptcy protection, had no choice but to liquidate.

Breakup Likely

``The most likely scenario is that the government will break up the company and cancel contracts,'' said Diogenis Papiomytis, a transport analyst at Frost & Sullivan in London. ``That will have huge social costs and will probably set off industrial action.''

Berlusconi and other ministers involved in the talks were quick to blame the unions, which have historically been close to the opposition parties. Labor Minister Maurizio Sacconi, in an e-mailed statement, called the unions' opposition ``absurd'' and said it was one of the main reasons that no other bidders had emerged. Unions in April also scuppered a takeover offer from Air France.

To contact the reporters on this story: Steve Scherer in Rome at sscherer@bloomberg.net; Marco Bertacche in Milan at mbertacche@bloomberg.net.

Last Updated: September 19, 2008 09:53 EDT