THE European Union's transport chief stepped up threats to reject Italy's 300 million-euro (US$464 million) rescue loan for Alitalia SpA, hampering efforts to sell the unprofitable flag carrier.

EU Transport Commissioner Jacques Barrot said the financial weakness of Alitalia raises doubts about the legality of the loan. Outgoing Italian Prime Minister Romano Prodi approved the financial lifeline to Alitalia last month after Air France-KLM Group pulled out of a takeover bid.

"If a loan is made to a company that is absolutely not solvent, that poses legal questions," Barrot told Bloomberg News yesterday in Brussels. The Italian government has until May 19 to provide details of the financing, he said.

Barrot's warning threatens to embroil Alitalia in a months- long battle over the legality of the aid, undermining Italy's bid to find a buyer for the country's biggest airline. Premier-elect Silvio Berlusconi has pledged to put together a group of Italian investors to buy Alitalia.

Italy must prove its loan was offered on commercial terms to win approval from the European Commission, the 27-nation EU's regulatory arm. A week-and-a-half ago, the commission expressed "doubts" the rescue package complies with EU state-aid rules, which aim to prevent distortions of competition as a result of government cash injections in companies.

The Italian government owns 49.9 percent of Alitalia, which is burning through its cash reserves at a rate of more than 3 million euros a day and had 180 million euros in cash and credit at the end of March. The company's management said it needs at least 750 million euros of new investment by the middle of this year to stay in business. Alitalia won EU permission to receive Italian government aid in 2001.