Russian airline Aeroflot has pulled out of the bidding for Alitalia, leaving Rome's auction of the unprofitable airline in danger of collapse with just two players left.
The Russian carrier's departure leaves smaller domestic airline Air One and US private equity fund MatlinPatterson as the only potential bidders ahead of a 12 July deadline to submit binding offers for the $1.6 billion airline.
The centre-left government's headaches were exacerbated when Air One said it would slash 12% of Alitalia's workforce if it won control.
Though Aeroflot was not the favourite to win, its presence had given credibility to an auction lacking in big airline names and marred by the earlier departures of other contenders such as US fund TPG and Italian businessman Carlo de Benedetti.
Shares of Alitalia closed down about 1% after losing 7% at one point in the day.
