Comment: Arrivederci Alitalia

Comment: Arrivederci Alitalia

The Italian carrier struggled for a decade, writes Ian Taylor, despite aid from the Gulf

Alitalia’s entry into administration on Wednesday marked the end of not one story but two, and maybe a new phase in a third.

The first concerns the Italian carrier itself. This is the third time in a decade Alitalia has faced bankruptcy.

It could be about to prove that if you stay on the edge long enough and peer over far enough, eventually you go over.

Alitalia previously went bankrupt in 2008, amid the world financial crisis, when the government of Silvio Berlusconi rode to the rescue with a consortium of private investors. The carrier was privatised in 2009.

That followed a prolonged flirtation with Air France-KLM, the airline’s SkyTeam partner, which foundered partly on hostility towards the notion of French bosses sacking Italian workers.

Alitalia was poised to go into administration again in August 2014, months after receiving another €500 million bailout, when Etihad stumped up €1.7 billion for a 49% stake – the maximum foreign investment allowed by EU law.

The carrier subsequently launched or resumed a series of routes, giving every impression of being past the worst. Yet the losses did not cease.

Alitalia’s management produced a plan this year to cut 2,000 out of 12,400 jobs and slash salaries by up to 30% in in an effort to save €1 billion in costs.

Union leaders said no to that, but accepted a renegotiated deal to axe 1,600 jobs, increase work hours and cut pay by 8% in return for €2 billion in investment.

But when they put this take-it-or-leave-it deal to a vote by union members, pilots and cabin crew raised two fingers.

So ‘special administrators’ now have a €600 million bridging loan from the government and six months to devise a rescue plan, sell the carrier or liquidate it.

The airline, one of Italy’s biggest employers, has cost Italian taxpayers an estimated €7 billion over the past decade.

Who could be interested to buy it? Well, no one without savage restructuring – there is serious overcapacity in Europe.

Of the three legacy airline groups in Europe, Air France has sought to acquire Alitalia before but has enough on its plate.

Lufthansa is only now fully integrating Brussels Airlines, Austrian and Swiss, and BA-parent IAG has a coherent group with Aer Lingus, Iberia and Vueling, though with perhaps a less-coherent low-cost long-haul start up.

Etihad has demonstrated the difficulty for foreign-owned carriers of operating by proxy.

Delta Air Lines has done much better with Virgin Atlantic, but the latter hardly compares with Alitalia.

That leaves Ryanair or possibly EasyJet. But why would either be interested, especially easyJet with profits declining already owing to pressure on fares from overcapacity?

The second story concerns Etihad and its investment strategy under president and chief executive James Hogan.

The Abu Dhabi-based carrier spent billions buying equity stakes in, and lending cash to, half a dozen struggling airlines. Alitalia is not the only turkey it has been involved with.

Air Berlin, currently the subject of an umpteenth restructuring and set to partially disappear in a joint venture with Etihad and TUI Germany (let’s see how well that works) is barely more of a success story.

In 2014, Hogan declared: “We believe in Alitalia. Only a year ago he described Alitalia as on “a journey to excellence”.

Italy’s economic development minister Carlo Calenda expressed a different view in his appraisal of Alitalia’s Australian chief executive Cramer Ball, an ally of Hogan’s.

“This management not only made mistakes with the company’s business model,” said Calenda, “but also had an approach that was arrogant.”

The Financial Times suggested Etihad had “gripes of its own” with the Italian government, in particular “for being too open to Ryanair”.

The third story concerns Italy’s banks and the €360 billion in ‘non-performing’ loans these are saddled with, equivalent to about 20% of Italian GDP.

I’ve no idea whether the €2 billion in additional loans Italian banks UniCredit and Intesa Sanpaolo were poised to commit to Alitalia before the airline went into administration would swell this number.

But uncertainty about Italian banks rattled financial markets earlier this year, threatening a new round of crisis across the euro zone.

At the very least this suggests the Italian government, which suffered a rejection of its own in a referendum last December, may struggle to find investors.

Let’s hope it proves once again to be arrivederci for Alitalia and not addio. I’d miss the sunglasses.

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