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Etihad Nears Talks to Make Investment in Ailing Alitalia

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June 14 (Bloomberg) -- Etihad Airways PJSC is moving closer to negotiations with Alitalia SpA on a plan to invest in the ailing carrier that was propped up last year by Italy’s government.

The Alitalia supervisory board gave its backing for senior management to discuss an investment contract with Etihad, according to a statement yesterday by the Rome-based airline.

Gaining an Alitalia stake would add to a half-dozen holdings that Abu Dhabi-based Etihad owns from Serbia to the Seychelles and Australia. The third-largest Middle Eastern carrier seeks to funnel more traffic through its Abu Dhabi hub, and the Italian market is attractive to airlines because of a large population and location in the heart of Europe.

Alitalia has sought a new major shareholder after Air France-KLM Group bowed out of a rescue package brokered under Italy’s supervision to keep the chronically unprofitable airline afloat. Air France said it wouldn’t participate in a capital increase, ceding its role as the largest shareholder.

Etihad said this month that it set specific conditions for an investment, with approval needed from the Italian company before detailed talks begin. While Etihad hasn’t elaborated, Alitalia is likely to face deeper cost cuts than the several thousand job losses proposed under the government-led bailout.

The two sides had been inching closer to an accord since Alitalia’s board signaled support for Etihad’s proposals last week and gave management a mandate to continue talks.

To contact the reporter on this story: Benedikt Kammel in Berlin at bkammel@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net Ed Dufner

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