Talks between Alitalia (AZ, Rome Fiumicino) and Air Malta (KM, Malta) concerning the former's acquisition of a 49% stake in the latter, have collapsed local Maltese media reports have indicated.

The MaltaToday newspaper reported Sunday, January 8, that informed sources had confirmed the deal had now fallen through following months of speculation and leaked government reports.

The Italian carrier signed a Memorandum of Understanding with the board of directors of Air Malta and the Maltese government in April 2016 wherein it pledged to complete a comprehensive due diligence of Air Malta with the possible intention of becoming a 49% shareholder in the Maltese airline. The assessment was due to have been completed by late July with a formal decision to have been taken shortly afterwards.

However, doubts about the tie-up began to emerge in September last year when repeated deadlines for an announcement were missed. While Maltese government officials attempted to downplay growing suspicions of the deal's collapse, reports in Italy's press pointed to Alitalia's 49% shareholder, Etihad Airways (EY, Abu Dhabi Int'l), having second thoughts about its strategy of acquiring stakes in European airlines given the poor returns seen thus far from loss-making Alitalia and Air Berlin (AB, Berlin Tegel).

According to Italy's Messaggero, the UAE-based firm even sought to offload its stake in the Italian airline to Lufthansa Group as part of a shake-up of its Air Berlin business interests.

For its part, Alitalia management, spearheaded by Cramer Ball, has attempted to shore up support from both shareholders and government for what it has termed, the second phase of a restructuring programme, aimed at curbing widening losses.

Among the plan's aspects, Il Messaggero reported, are the proposed layoff of up to 2,000 out of 12,000 total staff employed at Alitalia's mainline carrier. Up to twenty aircraft will also be grounded. In addition, the carrier would be split into two with short- and medium-haul operations to be operated as boutique/low-cost flights with long-haul to remain full service. Multiple loss-making routes, primarily in the domestic and regional European markets, will also be cut.

Rome has since directed management to put together a definitive plan concerning the way forward before any firm decisions can be taken.