The bankrupt Italian airline, Alitalia, faces imminent collapse after a consortium of Italian industrialists yesterday withdrew its offer to buy the carrier.

Silvio Berlusconi, the Prime Minister, said: "We are facing the abyss." Luigi Angeletti, head of the UIL union, one of three unions that had accepted the bid by the Italian Air Company (CAI), said that the collapse was "a catastrophe for Italian society and trades unions".

The news comes after weeks of brinkmanship, with unions banking on being able to squeeze further concessions from the consortium and calculating that Mr Berlusconi, who had put his prestige on the line to find an "Italian solution", would not allow it to fail.

The end of the talks spells doom for a carrier that has been a proud national symbol of Italy for more than six decades, flying the Italian tricolour, but which has suffered from chronic labour disputes and mismanagement, aggravated more recently by crippling fuel costs.

The takeover consortium had laid down a deadline of 3.50pm local time for the airline's nine unions to back it. As the deadline neared, Maurizio Sacconi, Italy's Labour Minister, admited that Alitalia's future was "hanging by a thread".

After the deadline passed the group of investors, led by Roberto Colaninno, chairman of the scooter manufacturer Piaggio, withdrew its bid. With no other offers on the table, Alitalia's administrator, Augusto Fantozzi, said that this would mean the airline now faced liquidation proceedings. There were shouts of protest and dismay from Alitalia workers demonstrating outside the CAI meeting as the news emerged.

Mr Berlusconi has said that the airline's 20,000 workers cannot expect generous redundancy packages in the case of liquidation. Mr Fantozzi said that although previous deadlines had come and gone, this time Alitalia simply had "no cash left to continue".

Alitalia, founded in 1946, needs €1.4 million (£1.1 million) a day for fuel and loses a further €2 million a day, adding to debts of €1.17 billion recorded at the end of July. The CAI consortium had offered to inject €1.5 billion into Alitalia and merge it with Air One, Italy's second largest carrier.

Three of the four larger unions said that they could accept the deal, but smaller ones, including those representing pilots and flight attendants, objected to the proposed loss of more than 3,000 jobs and new contracts laying down longer hours for the same pay.

Fabio Berti, leader of ANPAC, the pilots' union, said that his members were prepared to make "extraordinary sacrifices" to persuade CAI to change its mind and return to negotiations.

Despite the crisis, Alitalia's planes continued to take off and land normally. Fifty flights were cancelled yesterday, but the airline said that this was because of a one-day strike by a small trades union.

Mr Berlusconi, who had earlier said that he was "still optimistic", blamed the leftwing union CGIL, which held out against the deal, for causing the crisis. CGIL had tabled a counter proposal together with the pilots union and other smaller unions involving further negotiations, but CAI members said that it was too late.

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