"The airlines will now move to finalize the transactional documents, that will include the agreed upon conditions, as soon as possible," the airline said.
The airlines did not disclose the proposed terms of the accord, which they said remains subject to regulatory approvals. European Union authorities will want to ensure any deal doesn't violate competition rules.
Etihad already has stakes in a number of European carriers, including Air Serbia, Ireland's Aer Lingus and Germany's second largest airline, Air Berlin. It also is a partial owner of Virgin Australia, Air Seychelles and India's Jet Airways.
Etihad is smaller than its Gulf competitor Qatar Airways and the region's largest carrier, Dubai-based Emirates.
Italian Transport Minister Maurizio Lupi earlier this month told Italy's state RaiNews that Etihad's investment could reach about $816 million and would revitalize Rome's Fiumicino and Milan's Malpensa airports.
A successful deal would likely involve banks renegotiating more than $700 million in debt, canceling some and converting the rest into shares, according to Italian media reports.
Lupi issued a statement Wednesday saying he and Italy's labor minister would set up a meeting soon to discuss layoffs, which could face resistance by labor unions. He also reported progress with banks in resolving the debt issue during a meeting on Tuesday, but he did not provide details.
''It is ever more clear that this marriage needs to go ahead, because it is by now evident to all that it involves a big industrial investment with concrete prospects for our company," Lupi said.