Shareholders in Alitalia voted unanimously Tuesday to put the company into administration, moving the troubled airline a step closer to liquidation as efforts continue to find a buyer.
The move follows last week's rejection by staff of job and salary cuts which management had proposed as a condition for injecting new funds under a two-billion-euro rescue plan for the loss-making company.
Alitalia said in a statement that flights would continue to operate as planned under the administrators, who were expected to be named by the Italian government after a cabinet meeting on Tuesday evening.
Ministers said last week Italy would provide a bridging loan to keep Alitalia's planes flying for around six months.
Reports say the temporary credit line could be as high as 500 million euros but the centre-left administration has ruled out nationalising the company.
If no buyer can be found, the administrators will have to organise its winding-up, with the potential loss of 20,000 jobs at the company and among suppliers.
Despite that, polls suggest a majority of Italians are prepared to see their erstwhile national carrier go to the wall rather than pump in more cash.
Consumer groups have threatened to sue the government if any more taxpayers money is spent on propping up the airline.
In a joint statement, Etihad Airways, which has a 49 percent stake, and Alitalia's Italian shareholders voiced "deep regret" at the outcome of the ballot.
James Hogan, Etihad's outgoing Australian CEO, said the staff vote had been the final straw for the Gulf carrier.
"We have done all we could to support Alitalia, as a minority shareholder, but it is clear this business requires fundamental and far-reaching restructuring to survive and grow in future," Hogan said in a statement.
- New Etihad setback -
"Without the support of all stakeholders for that restructuring, we are not prepared to continue to invest."
The plan rejected by staff involved cutting 1,700 jobs from a global headcount of 12,500 and wage cuts of up to eight percent.
Alitalia has been loss-making for years and has been squeezed hard recently by the emergence of leaner, low-cost rivals on domestic and European routes, particularly Ryanair, which is now the market leader in Italy.
The company lost 460 million euros last year and a similar loss is predicted for 2017. The restructuring plan envisaged a return to profitability by 2019 and a subsequent expansion of long-haul operations.
The failure to turn Alitalia around is a setback for Etihad, which announced heavy losses of its own at the end of last year and then revealed in January that Hogan would leave the company later this year.
The Abu Dhabi-based company acquired its stake when it saved Alitalia from bankruptcy in 2014 with a pledge to trim costs while improving service standards and capitalising on the brand's association with Italian luxury and style.
Hogan said significant improvements had been delivered. "However, new marketplace challenges, including greater low cost carrier competition and the impacts of terrorist events on tourism demand, meant further, deeper change was required," he said.