Will anyone offer to buy Italy’s ailing national airline?
Looks like Alitalia is in the same predicament as Olympic Airlines of Greece….. You may want to keep an eye on Alitalia if you’re planning on flying with them….
Will anyone offer to buy Italy’s ailing national airline?
From The Economist print edition
THE stoicism of Italy’s air travellers seems likely to be tested yet again on January 19th. The main trade unions at Alitalia, the national airline, have called on their members to strike that day. There was also a strike on January 19th last year, followed by more cancellations when employees ignored a ministerial injunction to remain at their posts. Labour unrest also left Alitalia’s passengers grounded in the autumn. While the rest of Europe’s airlines are thriving and even fighting back against budget-carrier competition, Alitalia (like Olympic in Greece) is stuck in a 1970s time-warp of losses, strikes and cancellations.
AFP
For sale—with strings attachedYet this month’s strike, if it goes ahead, will take place in a different corporate climate. On December 29th Italy’s finance ministry, Alitalia’s largest shareholder with a 49.9% stake, invited expressions of interest for the purchase of at least 30.1% of the airline and of 1.3 billion convertible bonds, with a nominal value of €450m ($590m), due to mature in 2010.
Interested parties must declare themselves by January 29th; those that meet the government’s conditions will receive more information about the troubled airline and will be allowed to bid for it. But since those conditions include keeping all 18,000 jobs and maintaining the route structure and the Italian nature of the carrier, “no rational bidders can be expected”, says a leading aviation analyst. In fact, the whole offer for sale could be seen as a cynical, if necessary, charade. With no takers and no permission from the European Union to pump in further aid, the government would have to let the airline go bust.
Potential buyers are said to include Air France, a member, with Alitalia, of an alliance called SkyTeam; Air One, an Italian airline which has a partnership with Germany’s Lufthansa; and private-equity groups. But none is likely to make an early move. Much more probable is that potential partners will sit tight until the airline runs out of cash this time next year and is grounded because it cannot pay its airport and fuel bills. After a week of national wailing and gnashing of teeth, Alitalia could be reborn with staff on 60% of their old, bloated pay rates, as a regional adjunct of the powerful Air France-KLM group, rather in the way that Swiss emerged from Swissair’s collapse as a short-haul feeder in the Star Alliance group, based around Lufthansa and United Airlines.
Thanks partly to its perennial labour problems and government interference with management attempts to solve them, Alitalia has lost money for years. It accumulated net losses of about €2.6 billion between 1999 and 2005 and by the end of September last year it had lost a further €275m. It has had some €2.8 billion of fresh capital pumped in since 2002. Such is Alitalia’s plight that Consob, Italy’s stockmarket regulator, requires it to report monthly on its debt and cash positions. Imaginative shuffling of assets and a capital injection saved the group just over a year ago. At the end of 2005 it had net debt of €879m and cash of €1.1 billion. By the end of October 2006 debt had risen to €972m and cash had fallen to €769m. Its figures for November are late.
A team of aviation consultants from America, who turned round Continental Airlines in the mid-1990s, tried to fix Alitalia but were defeated by the intransigence of its workers, who surpass even America’s notorious aviation unions in their determination to defend overmanning and economic privileges. Poor management is another problem, although Italy’s politicians must bear some of the blame in their choice of bosses and their reluctance to allow the radical restructuring that the airline has long needed.
In October Alitalia’s board reviewed a revised industrial plan for 2007-09 and confirmed the airline’s position as a “highly efficient network carrier”. Parties interested in buying the government’s stake that pass the preliminary screening will have to make their ideas known in business plans. Keeping the airline Italian, as the government requires, should not be difficult. But creating a highly efficient network carrier while guaranteeing the quantity of services and territorial coverage sounds a much taller order for any buyer wanting a return on its money.