* Alitalia shareholder meeting started, vote expected
* Shareholders have 30 days to decide whether to participate
* Study values Alitalia between zero and 150 million euros
* Air France-KLM puts strict conditions on participation
A leading European airline group denounced Italian plans to rescue Alitalia as illegal on Monday, as shareholders were due to vote on a capital increase to keep the near-bankrupt carrier flying.
International Airlines Group, which owns British Airways and Spain's Iberia, urged the European Commission to intervene over the Italian government's attempts to stitch together a bailout for Alitalia.
A 300 million euro ($407 million) capital increase forms a major part of the rescue, which aims to keep Alitalia alive while it works out how to ensure its long-term survival, but the participation of its top investor Air France-KLM remains far from certain.
IAG said the rescue breaks European Union rules. "We have always been opposed to state aid," said a spokeswoman for IAG, Europe's third biggest airline group by market value. "It's protectionist, undermines competition and favours failing airlines that have not got to grips with economic reality."
"We would urge and expect the EU Commission to take interim measures to suspend this manifestly illegal aid," she added.
In Brussels, the Commission said it expected Italian authorities to inform it of the plan. "Only after receiving the notification will we be able to assess its compatibility with EU state aid rules," Antoine Colombani, EU Commission spokesman for competition policy, said in an email.
Alitalia, which last turned a profit over a decade ago, was thrown a lifeline on Friday when its board members - including Air France-KLM - approved the government-led 500-million-euro bailout. The emergency plan includes the capital increase and loans worth 200 million euros.
However, all shareholders have 30 days to decide how much money to sink into the issue of new shares. Even if they support Monday's vote, they remain under no obligation to take part later in the cash call.
Air France-KLM, which owns a 25 percent stake and backed the bailout plan when it was presented to Alitalia's board last week, said it would decide on whether to participate only after Monday's shareholder meeting.
The Franco-Dutch airline said on Friday it would set "very strict" conditions before giving any help. Air France-KLM was concerned about the lack of clarity on Alitalia's valuation and insisted on much tougher restructuring, believing the emergency plan was not enough, sources close to the matter said.
"We still don't see how Alitalia could meet any of Air France-KLM's conditions," one source said, adding any decision would still require a meeting of the Franco-Dutch group's board.
Alitalia is valued at between zero and 150 million euros, according to a study by Credit Suisse commissioned by the airline, a source close to the matter said.
Italy brought in the state-owned post office last week to help save Alitalia. Taking into account a bond convertible into equity subscribed by shareholders for 95 million euros this year, the post office could get a stake of between 14-19 percent if it put a promised 75 million euros into the cash call.
If Air France-KLM does not participate, it risks being overtaken by Poste Italiane as the top shareholder and its stake could drop below 15 percent. This would mean it would effectively lose its veto power on new shareholders coming in.
Any of Air France-KLM's strict conditions could clash with Alitalia's long-haul ambitions, analysts said.
Alitalia's new CEO Gabriele Del Torchio wants the company to focus on the higher-margin long-haul market after its plans to become a strong regional player came unstuck due to tough competition from low cost players and high-speed trains.
Analysts said Air France-KLM remained the natural strategic partner for Alitalia, but the group's appetite was limited as it pushes through its own unpopular restructuring at home.
"I am sure they would strategically want to have Alitalia in their camp, but the last thing they want at the moment is to consolidate a rotting company," said airlines expert James Halstead, managing partner at UK-based Aviation Strategy Ltd.
A cash call without Air France-KLM would raise the uncertainty over Alitalia's future as it was meant to be only a stop-gap solution before talks on a possible tie-up of the two.
The cash will probably not last long and Alitalia needs a partner such as Air France-KLM to boost its long-term prospects.
The support of Alitalia's domestic investors for the capital increase is also in the balance. Its second biggest shareholder, the Riva family, has had its assets seized in a judicial investigation, including its Alitalia's 11 percent stake.
The airline is currently owned by a disparate group of 21 investors including bank Intesa Sanpaolo and highway operator Atlantia, a consortium pulled together in 2008 by then prime minister Silvio Berlusconi after he rejected a takeover by Air France-KLM.