Etihad says it has finalised the conditions it requires for a major investment in Alitalia, following months of negotiations.
Etihad did not give further details, but in a TV interview Italy’s transport minister said Etihad was ready to invest around 600m euros in Alitalia.
Reports say that in return Abu Dhabi based Etihad will receive a 49% stake in Alitalia.
The deal needs to be confirmed by the board of Alitalia and other parties.
Reuters reports that Alitalia has agreed as many as 2,900 job cuts under the deal and that the Italian government has agreed to back a redundancy scheme for affected staff.
In a statement, Etihad said the Italian government “looks favourably” at the partnership between the airlines.
“An equity investment in Alitalia will be beneficial not only for both airlines, but, more importantly, it will give more choice and broader travel opportunities to business and leisure travellers into and out of Italy,” said chief executive of Etihad Airways, James Hogan.
Alitalia flies about 25 million passengers a year, but is weighed down by debts of about 800m euros (£656m).
Last October, Alitalia approved plans for a 300m euro capital increase as part of a deal to fend off bankruptcy.
Gabriele Del Torchio, chief executive of Alitalia, said: “This is an excellent outcome for Alitalia. This investment will provide financial stability and confirms Alitalia’s key strategic role as an infrastructure player in the travel and tourism industry in Italy for long-term growth.”