The Deal: Alitalia Secures New Financing

NEW YORK (TheStreet) -- Alitalia shareholders were due to meet Monday to vote on a €500 million ($677.63 million) rescue package to help Italy's flagship carrier stave off bankruptcy.

Board members and key investors late Friday approved a plan to raise €500 million, including €300 million through the issue of stock options to shareholders. The remaining €200 million would come from new and existing bank loans.

Italian postal services company Poste Italiane will guarantee €75 million of the capital increase.

In addition, Italian lenders Unicredit and Intesa Sanpaolo have pledged to cover up ¿100 million. They will also provide a €100 million loan to help Alitalia meet its financing needs.

Air France-KLM Group, Alitalia's largest shareholder with 25% stake, said its representatives approved the emergency plan "to enable continued operations at Alitalia." However, so far it has been reluctant to pump any more money in Alitalia, which has failed to make a profit since emerging from bankruptcy in early 2009. Air France-KLM also has troubles of its own, warning in July that its recovery is fragile and would be undermined by cost and job cuts.

On Monday, shares in Air France-KLM shed 1.6% in Paris to ¿7.43, valuing the equity at €2.25 billion.

After Friday's board meeting, Alitalia Chairman Roberto Colaninno released a statement noting "the large number of shareholders who willingly approved the capital increase."

He added: "The entire board of directors expressed its satisfaction at the approval of a financial plan that - with a massive injection of fresh funds - provides a solid basis for the future of the company."

In a research note Monday, analyst Hard Liberge-Doundoux, of CM-CIC Securities, in Paris said that while the participation of Air France-KLM would lend "significant credence" to the rescue plan, the group apparently still has doubts about the full extent of the reorganization.

The analyst nevertheless remains bullish on Air France-KLM, reiterating his "buy" recommendation with a target price of €10 a share.

Alitalia needs an estimated €10 million a day to keep its fleet in the air, and came under new pressure to resolve its financial predicament last week when energy company Eni SpA threatened to cut off fuel supplies.

The carrier's first-half loss widened to €294 million from a loss of ¿204 million a year earlier. At the end of the first half, its cash reserves stood at €128 million, including unused credit facilities.

--Written by Renee Cordes in New York