Sept. 12 (Bloomberg) -- Alitalia SpA moved closer to bankruptcy as Roberto Colaninno's investor group abandoned talks to buy the state-owned carrier because of union opposition.

``The situation is worrisome and getting worse,'' Labor Minister Maurizio Sacconi said in Rome today after the negotiations broke down. ``Alitalia won't be able to operate much longer if there aren't new developments.''

Italy has been trying to sell its stake in Alitalia, which lost more than $3 million a day in the first half, for more than two years. Union opposition scuttled an offer from Air France- KLM Group in April, the same month Silvio Berlusconi was elected prime minister after pledging to organize an Italian bid that now may be unraveling.

The Colaninno-led bid proposed 3,250 job cuts and the sale of unprofitable assets including the airline's cargo and maintenance businesses. The offer links wages to productivity gains and would leave many Alitalia workers earning less, labor leaders said. The government had given unions a deadline of yesterday to reach an agreement, saying Alitalia would run out of cash this month and be bankrupt without an accord.

``After seven days of meetings, there aren't conditions to continue negotiations,'' Colaninno's Compagnia Aerea Italiana said today in an e-mailed statement. The unions ``don't seem to realize what a dramatic situation Alitalia is in,'' CAI said, adding that it hasn't formally withdrawn its offer.

`Soap Opera'

No further talks were scheduled, though the airline's government-appointed commissioner, Augusto Fantozzi, won't immediately start firing workers, Sacconi said. Alitalia declared insolvency last month and Fantozzi was appointed to oversee the sale or liquidation of assets.

Government officials said there was no alternative to the CAI offer except bankruptcy and that they hoped the two sides would quickly renew talks.

``The government wants to salvage the Alitalia talks,'' Transport Minister Altero Matteoli said in an interview. ``We gave time to the two parties and we'll do our part when they ask us to intervene. As of now there aren't any meetings scheduled for today or tomorrow.''

Unions Divided

Alitalia has nine main unions that have failed to forge a common position on the plan, prompting separate negotiations with the different labor groups. One of the main sticking points is the proposed salary reductions for the workers who would remain in the reorganized company. The CAI plan would cut labor costs by 40 percent, union officials said. Alitalia pilots have also balked at that job cuts, saying CAI has proposed shedding 1,000 of 2,500 pilots.

``We want an agreement to rescue the company,'' said Luigi Angeletti, national secretary of the UIL union. ``We know that there will be job cuts and workers will be asked to do more, but we don't see any reason why we should accept a cut in salary as well.''

Labor leaders met in Rome tonight to try to adopt a common position in hopes of reviving the talks, though the differences remained substantial. After meeting for more than two hours the unions released a joint statement requesting an ``urgent'' meeting with Fantozzi, the bankruptcy commissioner, that they hope will take place as soon as Monday. There was no mention in the statement of reviving the talks with CAI.

``I don't think we will be able to come up with a common position that would allow us to be optimistic about prospects for the talks,'' said Fabio Berti, head of the Anpac pilots union during a break from the talks.

Berlusconi

The failure to sell Alitalia to the Italian investors would mark a setback for Berlusconi's four-month-old government. Berlusconi helped torpedo the Air France offer, negotiated by the previous government, calling it ``arrogant'' and insisting he would find an Italian buyer. The crisis at Alitalia is fueling tensions with unions that could dog Berlusconi. His previous government faced six general strikes in five years.

``I'm disgusted,'' said Silvio Sircana, an opposition lawmaker and former spokesman for ex-Prime Minister Romano Prodi. ``There was true political sabotage of the plan to sell Alitalia to Air France, and now the negative consequences of that sabotage are being played out.''

After coming to power in May, Berlusconi's government hired lender Intesa Sanpaolo SpA to put together the rescue plan and find investors. Colaninno, 65, the head of scooter maker Piaggio & C. SpA and former chief of Telecom Italia SpA, formed CAI with 15 partners who promised to invest more than 1 billion euros ($1.4 billion) to buy the airline's flight business and merge it with rival Air One SpA.

To contact the reporters on this story: Flavia Krause-Jackson in Rome at fjackson@bloomberg.netMarco Bertacche in Milan at mbertacche@bloomberg.net

Last Updated: September 12, 2008 15:51 EDT