Loss-making post operator Consignia faces insolvency unless it can win government support, a report said.

Company chairman Allan Leighton, proposing to lay-off 30,000 postal staff in an effort to regain profitability, has warned that the firm will be unable to guarantee its solvency unless it is, effectively, underwritten by the government, The Observer newspaper said.

"We are losing money to such an extent that if we don't get comfort from the government technically we are trading insolvently," a source told the newspaper.

Insolvency, defined as being unable to pay debts when they fall due, often heralds receivership.

However, the government is believed to be full square behind Mr Leighton's plans, which aim to cut costs by �1.2bn to achieve profitability by 2005.

"We have been engaged in discussions about the [firm's] financial structure," a senior source for the Department of Trade and Industry told the newspaper.

"It's not going to be a problem."

Consignia was expected last week reveal losses estimated at �1-1.3bn for last year, but has postponed the profits announcement until next month.

Vehicle plan scrapped

Government support would allow Consignia to raise cash needed for kick-starting plans for raising funds from property assets.

But Consignia has scrapped a �300m plan to hive-off its vehicle fleet and IT operations, the Mail on Sunday said.

"This policy seems to be about moving bodies off our payroll rather than actually saving money," a source told the newspaper.

"We are not convinced that it will be of benefit to us."

The plan, involving 40,000 vehicles and 5,000 staff, had been resisted by union.