Air France sets tough conditions for Alitalia investment - report

MILAN (Reuters) - Air France-KLM has set tough conditions, including 5,000 job cuts, for investing more money in loss-making Italian airline Alitalia, financial daily Il Sole 24 Ore reported on Sunday.

In an unsourced report, the Italian newspaper said Air France-KLM, which is Alitalia's biggest shareholder with a 25 percent stake, had dictated its conditions to Italian Transport Minister Maurizio Lupi "around ten days ago".

The paper said the two sides were locked in a tug-of-war.

Air France-KLM's conditions, it said, included the removal of Alitalia's board of directors and a restructuring of its debts of nearly 1 billion euros ($1.35 billion) to reduce them by 70 to 80 percent.

The 5,000 job cuts would be more than double what Alitalia's CEO Gabriele del Torchio has pencilled in as part of a revised restructuring plan to keep it in business, the newspaper said.

A source close to the matter said Air France-KLM, which is in the middle of its own restructuring, had asked for "many job cuts" but fewer than 5,000, without giving a figure.

The Franco-Dutch airline declined to comment on the report and a spokesman for Lupi was not immediately available for comment.

Air France-KLM gave its approval to a 300 million euros capital increase in the ailing Italian national carrier along with Alitalia's other investors, but is not obliged to participate and has always said it would attach strict conditions before giving any help.

Part of a wider bailout, the cash call is seen as only a stopgap solution before talks on a possible tie-up between Alitalia and Air France-KLM, although Lupi has said Italy would seek a different international partner if Air France-KLM does not subscribe to the capital increase.

On Thursday, Air France wrote off the value of its stake in Alitalia, which has not made a profit for more than a decade.

Its Chief Executive, Alexandre de Juniac, told a news conference that conditions for any agreement included a deal on medium-haul and long-haul networks, "social mechanisms" and "financially, a very strong restructuring.

Alitalia's shareholders have until mid-November to say whether they will take part in the capital increase. ($1 = 0.7414 euros)

(Reporting by Silvia Aloisi, additional reporting by Cyril Altmeyer)