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Exclusive: Alitalia, Etihad deal likely to be cleared by end of year - source

By Foo Yun Chee

BRUSSELS (Reuters) - Italian airline Alitalia and Etihad Airways are expected to win EU regulatory clearance for their tie-up by the end of the year with minor concessions, a person familiar with the matter said on Tuesday.

Abu Dhabi-based Etihad clinched a deal last month to buy 49 percent of loss making Alitalia in a 1.76-billion-euro ($2.31 billion) rescue plan, giving it access to Europe's fourth-largest travel market and 25 million passengers.

Cash-rich Etihad, which has minority stakes in Air Berlin , Ireland's Aer Lingus , Virgin Australia and other global airlines, would be the largest single shareholder in Alitalia after the deal.

"The deal is expected to be notified to the European Commission this month. It should be conditional, phase-one clearance," said the person, who declined to be named because of the sensitivity of the matter.

A phase-one review by the EU antitrust authority lasts 25 working days, which is extended by 10 additional working days if companies offer concessions to allay competition concerns.

The Commission's spokesman for competition policy, Antoine Colombani, and Etihad declined to comment. Alitalia was not immediately available for comment.

The source said the airlines may have to give up some airport slots or overlapping routes should the Commission have concerns that the deal may reduce competition.

Etihad has daily flights from Abu Dhabi to Rome and Milan, while Alitalia operates five flights a week from Rome to Abu Dhabi.

In previous airline deals, EU regulators have forced carriers to surrender rights over slots, grant traffic rights and open up their frequent flyer programmes to rivals.

The Etihad deal will also need to comply with EU rules ensuring that European companies own more than 50 percent of EU airlines and have operational control.

A second source with direct knowledge of the Commission's working say Italian authorities were cooperating with the regulator and may receive the green light next year. The Etihad deal does not need this approval before it is implemented.

Existing Alitalia shareholders, including state-owned Poste Italiane, will group their holdings in a so-called "mid-company" that will control 51 percent of the shares in the restructured airline.

($1 = 0.7624 euro)

(Additional reporting by Praveen Menon in Dubai and Alberto Sisto in Milan; editing by Martin Santa, Tom Pfeiffer and David Clarke)

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