* Board extends Friday capital increase deadline to Nov. 27
* Air France-KLM votes against new business plan -source
* Revised business plan to include "severe cost cuts"
By Alberto Sisto
ROME, Nov 13 (Reuters) - The board of Alitalia on Wednesdayapproved a revised business plan, promising severe cost cuts tomake the Italian airline more profitable, but its new strategyfailed to convince top shareholder Air France-KLM.
The Franco-Dutch group, which owns 25 percent of Alitalia,voted against the plan, a source close to the matter said.
"Air France welcomed the plan, but the problem with the debtremains, so they voted against it," the source said.
Air France-KLM declined to comment.
Alitalia said in a statement that the revised industrialplan would include "severe cost cuts", but did not mention anyof the heavy job losses of up to 2,000 and salary cuts thatsources this week said were part of the proposals on the table.
However, the company said it would cut the number of itsmedium-range aircraft and increase the number of internationaland intercontinental flights as it seeks to boost revenues byfocusing on the more lucrative long-haul market.
The board also approved an extension to Nov. 27 of a Fridaydeadline for shareholders to subscribe to a 300 million euro($402 million) capital increase needed to boost its coffers.
The Italian airline is wrestling with losses and is stuck ina months-long tussle with Air France-KLM over whether they wantto keep their strategic and financial partnership alive.
Air France-KLM is Alitalia's biggest shareholder but it haswritten off its 25-percent stake and threatened to sit out ofthe cash call unless the Italian carrier comes up with a toughrestructuring plan to lower its 813 million euro net debt.
The Franco-Dutch group was annoyed by being left out of thework on the new plan, analysts said, adding that while thechanges proposed were a step in the right direction, they fellshort of meeting Air France-KLM's conditions.
Demands for banks to write off big parts of Alitalia's debtand heavier restructuring of the carrier's sales and supportstructures, were some of the sticking points, analysts said.
"Air France-KLM's financial leeway is so slim that it cannotdecently invest in Alitalia without obtaining strict compliancewith its conditions," Harald Liberge-Dondoux, an analyst atCM-CIC Securities, said in a note.
Air France-KLM is in the midst of its own restructuring,including the need to cut its net debt of 5.40 billion euros,and can ill-afford ploughing more money into Alitalia.
Even if Air France-KLM's stake drops to around 6 percentshould it refuse to participate in the cash call, the airline isunlikely to give up on Alitalia and may return with its demandsas part of a take-over offer for the Italian carrier next year,analysts said.
Air France-KLM has said in the past it would consider takingcontrol of its SkyTeam alliance partner to bolster its access tothe Italian travel market, Europe's fourth largest.
Despite Rome dangling the prospect of a new Asian partnerfor Alitalia should Air France-KLM walk away, neither side wantsto abandon an alliance that airline insiders say could yet bringstrategic benefits to both carriers in the long-term, especiallyas a concrete alternative partner has yet to emerge.
Italy's unions have said their response would be "very, veryhard" should any job cuts at Alitalia compound the situation forworkers already struggling in a grim economic environment.
Several dozen employees staged a sit-in outside Alitalia'sheadquarters in Rome during the meeting, shouting insults atmanagement as they protested their short-term contracts and anyjob cuts that may have been discussed.
Alitalia remains a political hot potato for the fragilecoalition government of Enrico Letta, and any tough revamp ofthe carrier to suit a foreign investor would rankle.
The airline, which has made a profit only a few times in its67-year history, has yet to convince the market that itsstrategy will make it sustainable in the long-term.
Alitalia needs a partner willing to invest billions of eurosin larger aircraft and intercontinental routes to boostrevenues, given that the cash call, only partially subscribedfor now, is only a temporary reprieve, analysts said.
So far, Alitalia can count on up to 240 million eurospledged in the cash call, among others by Italy's two biggestbanks IntesaSanpaolo and UniCredit as well asby state-backed postal services group Poste Italiane, whichLetta pulled in last month to try and keep Alitalia flying.
Andrea Giuricin, a transport analyst at Milan's BicoccaUniversity, said the decision to pull in Italy's postal serviceprovider has effectively stymied discussion on a true long-termindustrial plan.
"Strategically, the move by the government to bring inItaly's postal service is backfiring because it's effectivelyalienating Air France, which is a more natural (industrial)partner," Giuricin said.
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