By Alberto Sisto and Cyril Altmeyer
ROME/PARIS (Reuters) - A decision by Alitalia's biggest shareholder, Air France-KLM, on whether to participate in an emergency share issue for the near-bankrupt Italian airline is evenly balanced, a source close to the Franco-Dutch carrier said on Tuesday.
Air France-KLM is crucial to Alitalia's chances of keeping flying, but the source told Reuters that the Italian carrier's survival plan fell short of its requirements.
"The position of Air France-KLM is 50:50 at this stage," the source said. "The business plan presented last week was not suitable, the conditions were not fulfilled, particularly in terms of debt restructuring."
However, the source added that Alitalia was "of strategic interest" to Air France-KLM, which owns 25 percent of the airline that has not made a profit for more than a decade.
But it is not obliged to participate in the cash call, and has always said it would attach strict conditions before giving any help. Analysts suggest Air France-KLM is dragging its feet in order to secure stricter restructuring concessions from the Italian government and other shareholders.
The cash call, part of a wider bailout, is seen as only a stop-gap solution before talks on a possible tie-up between Alitalia and Air France-KLM.
Massimo Sarmi, the head of Italy's post office, which has agreed to commit 75 million euros to the capital increase, was flying to Paris to discuss matters with Air France, a second source told Reuters.
An Air France-KLM spokesman declined to comment.
Alitalia came close to being grounded last weekend after its major creditor Eni
Rome has patched together an emergency 500 million-euro fund, persuading the state-owned post office to take part and banks Intesa Sanpaolo
Intesa, which is also an Alitalia shareholder, said in a statement it would subscribe to its quota of the cash call, or 26 million euros, on top of the bank guarantee of up to 50 million euros.
But Alitalia still needs to find about 100 million euros more from its shareholders, who have 30 days to decide whether to sign up. That gives Air France considerable leverage.
The Franco-Dutch carrier was barred from a full takeover of Alitalia in late 2008 by then prime minister Silvio Berlusconi.
Alitalia has lost 700,000 euros a day since then and Italy's current government and Alitalia shareholders hope to persuade Air France to join the capital increase. So far the parties have failed to agree financial commitments and business strategy.
Alitalia wants to reposition itself in the higher-margin long-haul market after losing out on regional and domestic routes to competition from low-cost carriers and high-speed trains. That plan appears to clash with Air France's demands for much tougher restructuring and debt-cutting measures.
Analysts have said the logical way to save the Italian carrier would be for Air France-KLM to take over the operating core of the airline and get rid of the entire Alitalia back-office structure, However, that would mean severe cost cuts and job losses, which Rome and unions are likely to oppose.
If Air France-KLM does not participate in the share issue, it could be overtaken by the Italian post office as the top investor and its own stake could drop to below 15 percent. This would effectively cost the company its veto power on any new shareholders coming in.
If Alitalia were to fail, Air France-KLM would lose access to Europe's fourth-largest travel market. But with Air France in the middle of a tough restructuring itself, that decision will be a close.
"Without Air France-KLM, there is even less of a future for Alitalia," said Andrea Giuricin, a transport analyst at Milan's Bicocca university. "If Air France-KLM does not put in the money, I want to see which Italian shareholders fill the gap."
The support of all of Alitalia's domestic investors for the capital increase is also uncertain. Its second biggest shareholder, the Riva family, has had its assets seized in a judicial investigation, including its 11 percent stake in Alitalia.
Alitalia is owned by a disparate group of 21 investors including Intesa and highway operator Atlantia
(Writing by Agnieszka Flak; Editing by Sophie Walker and David Stamp)