Alitalia (AZ, Rome Fiumicino) paid its 10,500 employees only half of their March salaries as it runs short of cash while talks between Rome and Brussels on creating a new state-owned company, ITA - Italia Trasporto Aereo (AZ, Milan Linate), are at an impasse. There are just three weeks to find an agreement if the newco is to get off the ground in time for the vital summer season, according to the newspaper Corriere della Sera.

Italy’s bankrupt flag carrier has been under administration since 2017, remaining operational thanks to more than EUR5 billion euros (USD5.9 billion) of public funding, some of which is still under investigation at the European Commission.

The European Union has objected to segments of the plan to launch the new airline, insisting on a separation between Alitalia’s assets and those of ITA. As previously reported, Brussels has demanded, according to local media, that the newco must pay market rates if it is to keep, for example, Alitalia’s brand and its lucrative slots at Milan Linate.

Giancarlo Giorgetti, Italy’s economic development minister, admitted last week that talks with the European Commission had stalled. A “new strategy” is needed “in light of the stalemate in the negotiations with the EU,” he reportedly said after a meeting with Alitalia’s special commissioners.

Prime Minister Mario Draghi had tasked Giorgetti and the ministers of finance, Daniele Franco, and transport, Enrico Giovannini, to handle the negotiations with the EU’s antitrust czar Margrethe Vestager. But three meetings have so far failed to produce any results.

“Alitalia’s situation was assessed in light of the stalled talks with the European Commission. We believe a new plan of action is necessary [...] to allow the company to keep operating,” Giorgetti said after meeting the administrators without elaborating.

In a bid to keep the ITA plan alive and continue paying Alitalia’s weighty workforce, the government may decide to press on with the sale of its aircraft and other assets to ITA. At the same time, it tries to break the deadlock with Brussels, sources told local media.

The government’s “new plan of action” could also involve organising the lease of Alitalia’s aviation business to ITA, an idea that the previous government had put forward, sources said. A further option is yet another injection of public money into the current Alitalia - and shelving ITA for the time being.

Alitalia’s administrators reportedly told unions via videoconference on March 31 that the company's continuity was at risk, and there was a possibility that the company may be forced to ground its aircraft.