Alitalia's board will hold a crisis meeting later today after the collapse of takeover talks between Air France-KLM and Italian unions, which left the Italian flag carrier facing imminent bankruptcy.

Shares in Alitalia were suspended after the talks collapsed on Wednesday night, as the only chance for rescue of the state-owned airline expired just 11 days before a general election.

A cabinet meeting is also expected to discuss developments after the Economy Minister Tommaso Padoa-Schioppa said the alternative to Air France-KLM was emergency administration.

The airline’s future has become a key issue in the run-up to the general election campaign and Romano Prodi, the outgoing Prime Minister, said that unions had made “a grave mistake” in breaking off talks.

Silvio Berlusconi, the media magnate and opposition leader, has said that he would prefer a home-grown buyer and that there was such a group in the wings, although it has not yet emerged.

Alitalia’s shares closed down 5.7 per cent at €0.50 on Wednesday, giving it a market value of around €735 million.

The chairman Maurizio Prato, who resigned last night after the breakdown in negotiations, is reported by unions to have said: “This company is cursed: only an exorcist can save it."

A takeover by Air France-KLM was considered Alitalia’s best hope of reviving the loss-making airline's fortunes. The airline needs a cash injecton by June to keep flying.

Italy's outoing government has been trying to sell its 49.9 per cent stake in the carrier for more than a year but has faced resistance from unions, Mr Berlusconi and Milan's airport operator.

The unions were irate that Air France-KLM planned to cut 2,100 jobs at Alitalia with more redundancies at its ground service unit. Union approval and support from Italy’s next government were a condition for finalising the deal.

Air France-KLM's chief executive Jean-Cyril Spinetta flew back to Paris on Wednesday night after rejecting union demands to take on the airline’s ground service unit, speed up plans to buy new planes and keep its cargo unit open.

The world’s largest airline said in a statement that M Spinetta regretted the breakdown.

Italian newspapers are speculating that the government might seek a compromise with unions or search for a way to keep the carrier flying until after elections on April 13-14.

Alitalia has enough funds to last just about until the end of June, as it continues to bleed over €1 million a day.

Other airlines could also look to return to bidding for the group, including fellow Italian operator Air One, which was snubbed by the government in favour of Air France-KLM, or even German airline Lufthansa, which pulled out of last year’s aborted auction.

The government’s first attempt at selling its Alitalia share in an auction ending in failure when all the bidders pulled out. The European Union has banned further state aid for Alitalia.

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