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By Antonella Cinelli
ROME (Reuters) - Middle Eastern airline Etihad will buy almost half of Alitalia and pour 560 million euros (447.33 million pounds) into the lossmaking Italian flag carrier in a turnaround effort that will involve heavy job losses, under a long-delayed deal signed on Friday.
The two airlines have been in talks for eight months and a final agreement was held up by tough negotiations over thousands of job cuts and an Alitalia debt restructuring demanded by Etihad Airways as a condition for the deal.
"After much effort, a year of work and many late nights, we did it," Alitalia CEO Gabriele Del Torchio told reporters after the signing of the deal attended by Alitalia Chairman Roberto Colaninno and Etihad Chief Executive James Hogan.
In addition to Etihad's 560 million euro investment, Alitalia shareholders will stump up 300 million euros via a capital increase approved earlier on Friday.
Alitalia's creditor banks have agreed to an additional 300 million euros in new loan facilities and up to 598 million will be released by restructuring Alitalia's debts, valuing the total deal signed on Friday at 1.76 billion euros.
Alitalia has made an annual profit only a few times in its 68-year history and received numerous state hand-outs before being privatised in 2008. It was kept afloat by a government-engineered, 500-million-euro rescue package last year.
Without a deal with cash-rich Etihad, its planes may have been grounded.
Etihad, owned by the emirate of Abu Dhabi, will acquire a 49 percent stake in Alitalia. The Italian government had previously said Etihad would invest 1.2 billion euros in the airline over the next three years as part of the restructuring, which is expected to entail 1,635 job cuts.
A marriage with Etihad could bring Alitalia money to invest in more profitable long-haul routes and make it less reliant on domestic and regional services where it has struggled to compete against low-cost airlines and high-speed trains.
Etihad's Hogan said Alitalia, which offers access to Europe's fourth-largest travel market and flies 25 million passengers a year, was a good fit for his airline.
"There are no more exciting destinations in Europe than Italy," Hogan said, adding he would seek to remake the Alitalia brand. "To me, the sexiest airline in Europe is Alitalia."
The Gulf carrier already has stakes in Air Berlin (DE:AB1) and Aer Lingus (I:AERL) and the latest deal will boost its efforts to expand in Europe.
However, Hogan said Alitalia was a financially poor business and it would take time to turn it around.
"There's no quick fix... Alitalia is going nowhere, but the way Alitalia is going to look in the future is very different," Hogan said. "We're putting in a three-year plan to move the airline back to profitability by 2017."
To meet that target, Etihad plans to turn Rome's Fiumicino airport into an intercontinental hub, boost connections from Milan and improve its cargo business, Hogan said.
(Additional reporting by Steve Scherer and James Mackenzie, writing by Agnieszka Flak; editing by Tom Pfeiffer)