Alitalia seen running out of options after disappointing cash call

* Secures less than two thirds of cash call

* Needs strong partner to survive

* Air France-KLM (Other OTC: AFLYY - news) seen as the only possible saviour

By Agnieszka Flak

MILAN, Nov 29 (Reuters) - After a poor response to its emergency rights issue, Alitalia has been left with the prospect of literally running out of fuel before the peak season next summer unless it can get top shareholder Air France-KLM or some other investor to pour in billions of euros and revamp its fleet, analysts say.

The long-ailing national airline has so far raised less than two thirds of the 300 million euros ($408 million) wanted from the share sale and will rely on Italy's state-owned postal service and other investors to come up with the rest.

Air France-KLM was one of several shareholders to snub the rights offer and let their stakes be diluted, saying that it needed to see a much more radical restructuring of Alitalia's debt before it could help.

"If Alitalia remains with only Italian shareholders, it does not have a future," Gilberto Benetton, whose motorway group Atlantia (Other OTC: ATASF - news) has a 8.9 percent stake in Alitalia, told La Repubblica newspaper this week.

"Even with a successful capital increase, we will be back to square one in three months' time."

The rights cash will likely allow Alitalia to keep flying throughout the key Christmas holiday season. But with daily losses of 700,000 euros and net debt of more than 800 million euros ($1.1 billion), analysts said that within six months it may again have to ground its fleet when the cash runs out.

GAMBLE

Even the Rome government sees the cash call as a stop-gap measure until a strong strategic partner can be found, but candidates are few and far between.

Over the years various major airlines including Air France-KLM, Lufthansa and British Airways have flirted with partnering the carrier that offers access to Europe's fourth-largest travel market and flies 25 million passengers a year.

In the end they decided Alitalia was too much of a gamble.

Today's Alitalia is much leaner than the group that was rescued and privatised in 2008. It has a younger fleet, its cost base is better than that of Air France (Paris: FR0000031122 - news) and long gone are the perks its staff enjoyed such as being picked up by taxi from home.

But a misguided focus on the domestic and regional markets have left the airline vulnerable to competition from low-cost carriers and from high-speed trains on the Milan-Rome route.

Only this month Dublin-based Ryanair and Spanish low-cost carrier Vueling heavily increased their presence at Rome's main Fiumicino airport, the hub of Alitalia's operations.

Meanwhile Alitalia's management has long realised that it needs to invest in more lucrative long-haul markets to compete, but lacks the finances to acquire the necessary planes.

Air France-KLM, in the midst of its own restructuring, is seen as the only viable saviour and analysts said it could offer to buy Alitalia next year, but it has said it will only do so if Alitalia can be relieved of its burdensome debt.

Italian papers have said the postal service and Air France-KLM are already in talks with a view to the Franco-Dutch group stepping in at a later stage but both companies have declined to comment.

"If the situation on the balance sheet remains the way it is, there is no chance that Air France-KLM will put cash on the table," Oddo Securities analyst Yan Derocles said.

"Alitalia needs to cut its debt significantly, but so far there have been no moves from the Italian banks."

The banks exposed to Alitalia's debt include Italy's two top lenders UniCredit (Berlin: CRIH.BE - news) and Intesa Sanpaolo (Berlin: IES.BE - news) , troubled Monte dei Paschi (Milan: BMPS.MI - news) di Siena and Banca Popolare di Sondrio, a source close to the matter said.

Other creditors include aircraft leasing companies and fuel suppliers like Eni (NYSE: E - news) .

"Any fresh liquidity crisis could lead to aircraft re-possessions unless Alitalia can reschedule payments," a Milan-based analyst said.