The Alitalia board decided to move forward with a EUR197 million (US$264.9 million) writedown of the value of the carrier's fleet, a step it declined to take in March when releasing its full-year financial results but that became necessary when it decided it had to "draw up a new and reliable business plan" ahead of the Italian government's sale of its AZ stake.

The decision deepened the company's full-year loss to EUR625.6 million from the EUR405.2 million announced two months ago and the EUR167.8 million suffered in 2005.

The accounting change affected AZ's operating result as well, which plunged to a EUR465.4 million loss from EUR47.5 million in 2005. It reported a EUR265.7 million operating deficit in March when it said it would not write down the fleet "taking into consideration current events". It said the fair value of 50 aircraft after deduction of sales cost was lower than the accounting value. The result of aligning the value of those aircraft with their recoverable value was EUR197 million.

The board said the 2006 loss, combined with the EUR147.5 million pre-tax loss reported for the first quarter of 2007, "exceeds a third of the company capital," leading it to convene shareholders on June 26 "to take decisions regarding the 2006 balance sheet" and "modify some parts of the company statute."

Despite the grim financial results, the government is proceeding with the planned privatization, granting the three bidders access to AZ's restricted data. Final offers are due July 2. Meanwhile, Transport Minister Alessandro Bianchi played down reports that the government is looking to offload its entire 49.9% stake, telling Thomson Financial that it must keep 10% until at least 2010 in order to enusre that the conditions for full privatization are met.