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Alitalia, Banks Said to Discuss Up to EU400 Million Debt Swap

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May 2 (Bloomberg) -- Alitalia SpA, the unprofitable Italian carrier seeking an investment from Etihad Airways PJSC, is discussing with bank creditors the conversion of as much as 400 million euros ($554 million) of debt into equity, three people familiar with the matter said.

Chief Executive Officer Gabriele Del Torchio is negotiating the debt issue with bankers in Milan today before his meeting with Etihad CEO James Hogan in Abu Dhabi next week, said the people, who asked not to be named because the talks are private. Today’s session may not lead to an agreement, according to the people.

Etihad has asked Alitalia to reach a deal on converting 200 million euros of debt to equity as well as writing off 200 million euros of loans as one of the conditions to invest in the Rome-based carrier, the people said. Four Italian banks, including Intesa Sanpaolo SpA and UniCredit SpA, are involved in the debt talks, they said.

Alitalia is seeking fresh capital from Etihad after failing to persuade Air France-KLM Group to participate in a capital increase last year. Italian Transport Minister Maurizio Lupi on April 17 told lawmakers in parliament that the government favored a deal with Etihad though he declined to provide details on what conditions the carrier has set.

Officials at UniCredit and Intesa didn’t immediately answer calls seeking comment. An Alitalia spokeswoman declined to comment.

BI AIRM<GO> for commercial aircraft manufacturers’ dashboard BI AIRL EU<GO> European airline dashboard BI AIRMG INDD<GO> Monthly orders for new aircraft, parked fleet statistics

To contact the reporters on this story: Daniele Lepido in Milan at dlepido1@bloomberg.net; Sonia Sirletti in Milan at ssirletti@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net Dan Liefgreen, Christopher Jasper

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