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. Last Updated: 07/27/2016

EU Starts to Probe State Aid to Alitalia

BRUSSELS -- The European Commission launched an in-depth probe of Alitalia on Wednesday to look for elements of illegal state aid in a restructuring plan that is crucial to the carrier's survival.

The start of the investigation sets off a process that could take as long as 18 months, but which commission officials -- including Transport Commissioner Jacques Barrot -- have indicated will be quicker.

"I want our analysis carried out swiftly," Barrot said in a statement Wednesday.

Alitalia would like the issues to be clarified in time for a planned 1.2 billion euro ($1.57 billion) capital increase, perhaps in April or May, but commission officials declined to commit to a specific deadline.

The loss-making airline wants to cut thousands of jobs and split operations into two companies to bring itself into profit.

But competitors and the commission are concerned about several elements of the plan, particularly the recapitalization.

A commission spokesman said the EU executive wanted to see letters of intent from banks guaranteeing they will participate in the capital increase to ensure that private funds will also be rolling in.

It also asked Italy to spell out how Alitalia's capital increase would affect the state's stake. Italy currently owns 62 percent of Alitalia but has promised to reduce that holding to 49 percent or less.

Alitalia is to be split into AZ Fly and AZ Services, which will handle air and ground services respectively.

The commission will engage an independent expert to check that state-controlled holding company Fintecna would act like a private investor in its acquisition of part of AZ Services.

That, along with the recapitalization of the airline, must "comply with the principle of a prudent investor operating in a market economy," it said in a statement.

"The commission will also check whether AZ Services and AZ Fly have market-based commercial ties," it said.

Alitalia already benefited from state aid in 1997 and EU rules prevent that from happening again, in what is known as the "one time, last time" rule for airlines.

Otherwise, EU regulations on state aid stipulate governments may help companies financially only on the same terms as a commercial investor.

The commission said competitor airlines would also have the chance to comment on Alitalia's plan and recapitalization. Other EU airlines like British Airways have voiced concerns that Alitalia was seeking to benefit from illegal state aid.

The European airline sector is widely seen as having too much capacity and the collapse of one carrier would ease the market for others.

As of September, Alitalia employed more than 20,000 people. Its volatile shares were up nearly one percent at 0.25 euros ($0.33) by early Wednesday afternoon.

The airline declined to comment on the commission decision.