Talks on the future of the near bankrupt Italian airline Alitalia are in chaos as Air France-KLM Group broke off exclusive takeover negotiations and the Alitalia chairman resigned.

Air France-KLM rejected a demand by Alitalia’s trades unions for the company to scale back planned job cuts and guarantee to keep its cargo unit. “I acknowledge with regret the collapse of the negotiations, which was not caused by us” said the Air France chief executive Jean-Cyril Spinetta.

The Alitalia Chairman, Maurizio Prato, is to step down and the company’s board will meet tomorrow (Thursday) to “take the necessary decisions,” the airline said. The collapse of the bid means Alitalia’s fate rests with Italy’s next government, due to be elected on April 13-14.

Union leaders said Mr Prato had remarked: “This company is cursed, only an exorcist can save it”. Mr Spinetta had offered to revise its plans for Alitalia’s fleet, maintenance and cargo units but this was rejected by the unions.

Silvio Berlusconi, the media tycoon and former Prime Minister who is the favourite to win, has claimed an “all Italian” consortium is ready to step in. However, the outgoing government led by Romano Prodi has said no such consortium exists and accused Mr Berlusconi of playing to nationalist and protectionist sentiment for electoral purposes.

Alitalia, which loses €1 million a day, now faces imminent receivership, with massive debts and less than €200 million in the kitty in cash and credit.

Alitalia had set a deadline of midnight last night (Wednesday) for trades unions to agree to the takeover or let it collapse. The deal was also undermined by opposition from Malpensa, the Milan airport, which fears its status as a hub is at risk.

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