Italy seeks Alitalia rescue despite doubts on business logic

Alitalia, the Italian national airline that has made a profit only a few times in its 67-year history, once again risks collapsing as the government scrambles to find investors willing to rescue its problem child.

Rome offered a financial lifeline to Alitalia through the state-owned post office, but the plan depends on private shareholders ploughing more money into what many investors regard as a corporate lost cause.

The carrier, whose board meets today, needs €500 million to stay in business as it has lost nearly €700,000 a day since being privatised in 2008 and has debts of around €1 billion.

Cash-strapped Italy is realising it may no longer keep its flag carrier in national hands. However, Rome is loath to accept a politically sensitive sell-out to Air France-KLM, Alitalia’s top shareholder with a 25 per cent holding, even though analysts say no other option makes business sense.

Time is running out. Alitalia’s management, the government and banks have held talks daily for the last fortnight to keep the airline’s fleet in the air beyond this week.

The government said late last night that Poste Italiane would participate in a capital increase for the flag carrier. However, it called on private shareholders to share the burden of injecting new capital into the airline.

It gave no financial details. However, sources close to the situation told Reuters earlier that the rescue plan envisaged the state injecting €150 million into the airline, the same amount as existing shareholders, while banks would provide an additional €200 million in new loans.

Poste Italiane would contribute €75 million while the rest of the state help would come in the form of credit guarantees, the sources said.

“It’s a bridging solution to guarantee the financial survival of the company but it depends on a strong change in the way the company is run,” one of the sources said.

At stake are what the government says is a strategic national asset, 14,000 jobs and a desire to buy time - the fragile right-left coalition government led by Enrico Letta can ill afford the risk of flights being grounded.

Energy group Eni has already threatened to stop supplying fuel beyond Saturday if no rescue plan is agreed fast.

Strings attached

Air France-KLM has shown interest in taking control but its offer comes with strings attached. Any cash injection by state firms would win only breathing space, without tackling the problems that got Alitalia into trouble.

“Politicians are looking for an alternative solution to a rather obvious business-based deal with Air France,” said Andrea Giuricin, transport analyst at Milan’s Bicocca University.

“Air France-KLM has its own financial problems, but at least it knows how the airline market works. None of the other proposals makes any business sense.”

Various Italian governments have pampered Alitalia with more than €4 billion in aid. Founded in 1946, the carrier, whose uniforms were once designed by fashion icon Armani, has long been the symbol of lavish spending and excessive staff benefits.

It once created a route to appease a minister who wanted to fly to Rome from his hometown in the north. In the 1970s, unions ended a strike only after it met their demand that cabin crew should be picked up at home by a driver. Until 2008, staff flew for free on its lucrative Milan-Rome route.

Most perks have gone since the airline was last rescued by a group of 21 Italian investors in 2008 at the request of then prime minister Silvio Berlusconi. Its costs are now lower than Air France’s and it has one of the youngest fleets in Europe.

The airline - whose initials for critics stand for “Always Late in Takeoff, Always Late in Arrival” - has improved its punctuality and in September fared better than British Airways and Germany’s Lufthansa, according to FlightStats.

But under the “Phoenix” rescue plan brokered by Mr Berlusconi, Alitalia focused on the domestic and regional markets - a bet it lost due to competition from low-cost carriers and from high-speed trains on the Milan-Rome route.

Its new CEO Gabriele Del Torchio is now pinning hopes on the higher-margin long-haul market but needs money for big planes. Here lies the benefit of a possible tie-up with Air France-KLM.

Reuters