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New law paves way for breaking up of Alitalia; AVIATION.

Italy's government has approved amending bankruptcy law, paving the way for a breakup of Alitalia and a bankruptcy filing for its troubled units.

During a cabinet meeting over Alitalia the government approved a decree and a draft law that would modify the Marzano law used in cases of financial crisis at major Italian companies, a source said.

After 20 months on the block in a fruitless hunt for a partner, 16 Italian investors will pump as much as EUR1 billion (EUR1.5 billion) into the healthy parts of the airline that will be reborn as a smaller, leaner carrier.

The restructured company is expected to focus on short and medium haul routes and will operate with a much smaller fleet and about 40 per cent fewer employees.

It will then resume the hunt for a foreign partner, with Air France-KLM and Lufthansa tipped as frontrunners to buy a stake.

Alitalia's sale adviser has already held an initial meeting with the Franco-Dutch carrier, which abandoned a deal to buy the carrier earlier this year over union opposition, to outline its rescue plan, another source familiar with the matter has said.

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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Aug 29, 2008
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