U.S. automaker Chrysler, already operating under government emergency aid, would cede control of its board and ultimately senior leadership if it completes a planned alliance with Italy's Fiat SpA.

The U.S. government and Fiat would appoint a board of directors for Chrysler, with a majority of them independent and not employed by either automaker, Chrysler Chief Executive Bob Nardelli said on Thursday in an internal memo to staff.

The board will have the responsibility to appoint a chairman, Nardelli said in the memo, a copy of which was obtained by Reuters. The board also will select a CEO with Fiat's concurrence.

That could mean the end of Nardelli's tenure at Chrysler, where he was named chairman and CEO in 2007 shortly after Cerberus Capital Management acquired its 80.1 percent stake in the automaker from Daimler AG.

Chrysler and Fiat have been in talks to complete a partnership by the end of April to meet the requirements of U.S. government emergency aid and avoid a bankruptcy filing.

The U.S. autos taskforce rejected Chrysler's turnaround plan in late March and gave the company until the end of April to cement the Fiat alliance and reach agreements with its unions to slash labor costs and with its lenders to cut debt.

We continue to review the status of all stakeholder discussions with Fiat, as the achievement of concessions is a condition of the alliance, Nardelli said.

The deal with Fiat hinges on Chrysler securing concessions from unions in the United States and Canada, as well as agreement with those who hold Chrysler's first-lien loans, which includes a group led by JPMorgan Chase & Co and others.

Fiat Chief Executive Sergio Marchionne has criticized the Canadian union, saying that a lack of progress in talks between it and Chrysler had hurt the chances of securing an alliance.

But Fiat Chairman Luca Cordero de Montezemolo denied on Friday a news report that the Italian car maker could look at General Motors' German unit Opel as an alternative.

Chrysler has about $7 billion of first-lien loans that stem from its breakaway from Daimler in 2007, and the creditor group had been asked initially to accept a steep reduction. Daimler still holds a stake of nearly 20 percent in Chrysler.

The U.S. Treasury has met regularly with the group, which has been asked to make significant additional concessions, Nardelli said.

The Treasury has extended a concessions proposal to the group, which is expected to respond to the offer shortly, he added.

Sources with knowledge of the matter told Reuters this week that Chrysler's first-lien lenders were preparing a counter-offer for the Treasury that might include equity in a Chrysler-Fiat alliance and some cash in exchange for abandoning their claim to some $7 billion of debt.

The lenders were responding two weeks after the creditors rejected a request from the Treasury to write off $6 billion of the amount they are owed, the sources said.

Chrysler is also in talks with the United Auto Workers union to restructure its union-aligned retiree healthcare trust by making part of its payments in equity rather than cash.

With the Canadian Auto Workers, Chrysler is seeking to reduce wages and benefits to match those paid by foreign automakers in the country.

The CAW expects to resume talks with Chrysler on Monday and said it had invited Marchionne to join the discussion.

Chrysler has been operating under $4 billion of U.S. government emergency aid and could receive up to $6 billion additional aid if it completes the alliance and other cost-cutting measures.

The taskforce also rejected a turnaround plan by Chrysler rival General Motors Corp, which has been given until the end of May to prepare much deeper cuts than it had previously planned and make them far faster as well.

(Additional reporting by Francesca Piscioneri in Rome; Editing by Will Waterman)

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