The European Commission has angered European airlines by giving the go-ahead to a rescue plan designed to revive Alitalia, the troubled Italian company.

Alitalia said it hoped to return to profit next year, after the Italian national flag carrier received conditional approval from the European Commission for a critical restructuring plan.

"Our aim is to be back in net profit in 2006," Giancarlo Cimoli, the president of the carrier, said.

Alitalia submitted plans to the EC under which it plans to cut jobs, break up the company and raise up to €1.2 billion (£800m) to ensure it dose not rely on illegal state aid.

"On the basis of a thorough and detailed analysis, the Commission has concluded that these recapitalisations do not involve any state aid," Jacques Barrot, the EU transport commissioner, said yesterday.

Other European airlines criticised the decision. Lufthansa is studying the move and will consider launching a complaint with a coalition of other carriers.

"This decision is a real setback to the much-needed consolidation of the European airline industry," a spokeswoman for British Airways told Reuters, calling it "a major reversal of the Commission’s good record against state aid".

Signor Cimoli said he hoped to have finished the company’s €1.2-billion-euro recapitalisation by October.

Under the agreement the Italian government’s holding in the company must fall from its present 62 per cent to less than 50 per cent.

Signor Cimoli said a "pre-marketing" exercise would determine the exact size of the offering and which banks would carry it out, adding that the underwriters already include Deutsche Bank.

Alitalia has previously said it did not expect to break even this year, though there will be an improvement from 2004’s net loss of €812 million.

Signor Cimoli said: "We are pushing to reach a profit by the end of next year. The company still has to make a big jump forward.

"We expect at least another heavy year of (efficiency) projects to arrive in 2006 at breakeven, or a clear profit," he said.

Alitalia had a positive cash flow in April, after recent outflows, due to an improvement in sales and a "dramatic reduction of costs", he said.

The commission’s decision was hailed by the Italian Transport Minister Pietro Lunardi, who warned, however, that solving the airline’s problems "would still require many sacrifices."

The European Union transport commissioner, Jacques Barrot, said the recapitalisation plan put forward by the Italian government could proceed, providing strict conditions were respected.

"On the basis of a thorough and detailed analysis, the commission has concluded that these recapitalisations do not involve any state aid," said Signor Barrot.

The Italian government is prevented from giving state aid to Alitalia under EU laws, which bar governments from propping up national companies more than once in a 10-year period.

Alitalia was granted €1.42 billion by the Italian government between 1997 and 2002.

The EU investigation focused on plans to split the company into two parts, AZ Fly and AZ Services, which are the flight operations and ground-handling services respectively.

AZ Fly will be recapitalised via the planned 1.2-billion-euro share sale, while AZ Services will benefit from a 216-million-euro investment from state holding company Fintecna.

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