Less than five years after it was rescued from bankruptcy and bought by a group of private investors for €1 billion ($1.35 billion) Alitalia is on the ropes again. A merger with Air France-KLM is one possible scenario to save the Italian airline, but the Franco-Dutch group is in restructuring mode itself and Italian patriotism might resist the idea of foreign operator taking control of its cherished flag carrier.

The struggling Italian group needs at least €455 million in extra funding from shareholders and creditors to fend off bankruptcy and return to profitability under a new three-year turnaround plan announced in July by CEO Gabriele Del Torchio.

Del Torchio, who was appointed in April and is Alitalia's third CEO in as many years, hired the boutique investment bank Leonardo & Co. to help tackle a liquidity crisis and negotiate a much-needed €300 million line of credit. In recent weeks, numerous high-level government officials, including Italian Prime Minister Enrico Letta, have been involved in talks to broker a solution, possibly a government-backed bridge loan, and avoid default.

The Alitalia board of directors also has called an extraordinary general meeting (EGM) for Oct. 14 to request shareholders to contribute €100 million in additional funding. This appears to be unlikely to happen because judicial authorities have frozen the assets of one shareholder (for an unrelated matter), while at least one other is in bankruptcy protection proceedings. Stockholders were requested to supply a €150 million emergency loan last February—a request that garnered only €95 million of the amount needed. Now, investors will be invited at the EGM to complete the signing of this previous bond, bringing the total equity call to €205 million.

Air France-KLM, which is Alitalia's largest shareholder with a 25% stake, took part in the February convertible bond, proportionate to its shareholding, but it is between a rock and a hard place as far as the additional funds are concerned. “The position of Air France-KLM does not allow us to spend lavishly,” Chairman and CEO Alexandre de Juniac said in an interview with French daily Les Echos.

Air France is the most leveraged of Europe's big network carriers, with a net debt of €5.3 billion as of June 30. On Oct. 4 it outlined additional measures to its Transform 2015 restructuring plan to improve results in medium-haul and cargo businesses. A new voluntary departure plan for about 2,900 employees will be implemented in 2014 at Air France. Air France-KLM reported a net loss of €793 million for the first half of 2013.

Abandoning Alitalia and its grip on Europe's fourth-largest air travel market, however, diverges with Air France-KLM's long-term goal of further consolidation. It had advocated a Franco-Dutch-Italian tripartite group before Alitalia's bankruptcy in 2008, and de Juniac recognizes that “Alitalia strengthens our commercial footprint pretty much everywhere. There are already many synergies.”

Another option—increasing its shareholding to make it a controlling stake—presents a different set of problems: Alitalia's inability to turn a profit does not make it an attractive investment. This might be less of an issue for Etihad Airways or some Chinese interests, which have been named as possible suitors, but Air France-KLM cannot afford to buy a white elephant. The Italian airline group—which comprises Alitalia mainline, Alitalia Express, Alitalia Cityliner and low-cost carrier Air One—has not reported profits since its relaunch. It lost a cumulative €843 million in 2009-12, and its net loss widened to €294 million in the first six months from €201 million in the year-ago period. The operating loss deepened 29% year-over-year to €198 million, and total revenue fell 4%, to €1.62 billion, for the first half of this year, in line with the contraction of passenger numbers to 10.7 million. Its net debt was €946 million at the end of June and, more worrisome, available liquidity—including unused credit lines—stood at just €128 million.

The Italian government has indicated it would be agreeable to Air France-KLM doubling its shareholding,, but it also wants commitments that the Alitalia brand will be retained, along with the connectivity and use of Rome's Fiumicino airport as a hub, especially for long-haul flights. While a multi-brand, multi-hub strategy is part of Air France's merger model, de Juniac has been emphatic about having a free hand to restructure the airline. “Our conditions for helping Alitalia are very strict. If conditions are right, I'm ready to move on. If they are not met, we will not go further.”