Alitalia Expected to Split in Two with Governmental Help

The European Union approved a controversial restructuring plan for troubled Italian-flag airline Alitalia that had been opposed by competing carriers as illegal state-sponsored aid.

Under the plan -which includes an Italian government loan of 400 million euros (about $492 million)- Alitalia will be broken up and receive a capital increase of up to $1.48 billion.

Officials at the European Commission said the restructuring plan, which would split Alitalia into new companies AZ Fly (handling air operations) and AZ Services (handling ground operations), does not comprise any state-sponsored aid whatsoever.

E.U. regulations forbid European airlines from getting state help more than once; according to European press reports, Alitalia already received government financial support back in 1997.

The carrier lost more than $568 million in 2004, results it said were "deeply impacted" by travel agency boycotts and employee strikes in the first two quarters of the year.