Italy’s bankrupt airline Alitalia SpA is running out of cash just as negotiations with the European Union to create a new national carrier are at a standstill.

Alitalia, which has been under administration since 2017, paid its 11,000 workers only half their March salaries. The pandemic dealt the final blow to the loss-making airline that for years has been kept afloat by more than 5 billion euros ($5.9 billion) of public money.

Yet the government’s plan to create a new, smaller carrier from the ashes of Alitalia has run into opposition from the European Union, which demands a clear separation between the assets and personnel of the bankrupt airline and its replacement, called ITA. The EU’s antitrust chief, Margrethe Vestager, insists that the new company pay market rates for Alitalia’s name and its prized takeoff and landing slots at Milan’s Linate airport, according to Italian media.

On the line are the 3 billion euros Italy is ready to inject into the new company. That money, as well as previous funding, risk being deemed illegal state aid which the ailing Alitalia wouldn’t be able to repay, forcing it to shut down.

New Strategy

“A new strategy” is needed “in light of the stalemate in the negotiations with the EU,” Economic Development Minister Giancarlo Giorgetti said on March 30 after meeting Alitalia’s administrators.

Italy needs a carrier to support its role in the global economy, including a tourist industry that accounts for 13% of gross domestic product. It might already be too late the get the new airline running in time for the lucrative summer season.

Prime Minister Mario Draghi asked Giorgetti, together with Finance Minister Daniele Franco and Transport Minister Enrico Giovannini, to handle the talks with Vestager. But three meetings in the past few weeks failed to yield any progress.

Vestager insists that new carrier ITA is lean enough to be economically self-sufficient and that it pays market prices for Alitalia assets. The government is keen to hand Alitalia’s name and the Linate slots to ITA.

“The current plan doesn’t allow us to conclude that this is a profitable investment,” according to a letter sent last week by Vestager to the Italian government, according to La Repubblica.