Taylor on Travel

Alitalia has filed for bankruptcy protection. This has to be the least-surprising development in the accelerating downturn in aviation.

The airline has long-term debts in excess of Euro1.1 billion, swelled by half-year losses of Euro400 million, and has been on the canvas for a decade. It barely got back on its feet following a post-2001 battering, and its footwork in the current bout with the oil price and banking crisis has been laboured. Alitalia is in no condition to go 14 rounds with a recession.

The board counted to ten and out on Friday. Now comes the tricky bit.

The liquidation and rebirth of the carrier in a merger with Italian domestic rival Air One may sound like a neat solution, but could be fraught.

We can assume most of the investment is in place from a 16-strong Italian consortium - a major consideration in current circumstances. Air France-KLM has expressed an interest in taking a minority stake, Lufthansa may do likewise, and the government in Rome will not drive a hard bargain in relinquishing its 49.9% stake. Think sweeteners more than smelling salts.

But wait - what scuppered the proposed takeover by Air France-KLM, aside from the opposition of soon-to-be-PM Silvio Berlusconi? It was the unions, which objected to thousands of job losses and threatened strike action - something in which they have experience.

Now the liquidation masterminded by banking group Intesa Sanpaolo threatens 7,000 redundancies from a workforce of 18,000. I make that more than one in three. The threat of being axed could demoralise or unify opposition to the plan. We will soon see which.

The remaining workers will be on new contracts. We can assume the new owners intend these to be less generous than the old. We can also assume those expected to accept the new contracts won't like it.

The plan is largely seen as the work of Berlusconi, who only recently returned as PM, but whose two previous terms of office have ended badly following waves of strikes and popular protest. Alitalia could form the terrain for the first battle of his new premiership.

If it does, Intesa Sanpaolo's announcement that formation of the new airline will take four weeks may prove optimistic.

Alastair Darling did not dare say it. The Bank of England has not dared yet either. But the OECD has stomped where the Chancellor and the Bank fear to tread.

Yesterday the Organisation for Economic Cooperation and Development forecast recession for the UK this quarter and next - i.e. now.

The recession will not officially be identified until next year, of course. In UK economic circles a recession is defined by a contraction in two successive, three-month periods.

This definition is not an iron law and you can pick another - rather like the inflation rate. The official rate is defined by the government's Consumer Prices Index, which provides a fairly limited guide to what is happening to prices. Check the official rate against your quarterly supermarket or fuel bills if in doubt.

So the OECD says the UK's economy is shrinking as we shelter from the current downpour and will suffer a sharper decline in October-December.

Combine this with Darling's astonishing suggestion at the weekend that Britain faces potentially "the worst economic conditions in 60 years" and you will understand the plunge in the pound against the euro. You may even think you would rather be in New Orleans.

We already know the economy stagnated in April-June and grew just 0.3% in the first three months of the year - the Office for National Statistics has told us.

Last week, the CBI reported the retail sales figures for August were the worst in 25 years. The Office for National Statistics did not tell us that - its most recent figures suggested a small recovery.

We are in dangerous territory when economists do not trust government figures. Yet Darling has been roundly ridiculed for his comments.

Britain clearly is not experiencing its worst economic crisis in 60 years - although why Darling chose 1948 for the comparison is beyond me. There was still rationing in 1948, but this was the year the NHS was founded and the Marshall Plan was in swing across Western Europe - not signs of deep crisis. Did he simply wish to avoid saying "for 75 years"?

It is not even clear yet that this is the worst economic crisis since the early 1980s. The situation is almost certainly worse than the early 1990s.

However, possibly the most disturbing of Darling's comments attracted less attention. It was his warning that the downturn could be "profound and long-lasting". The Chancellor was basically saying - 'whatever the government does, things will get worse for the foreseeable future'. 

Can it be only a fortnight since the British Chambers of Commerce was solemnly warning that the UK may enter a technical recession in six to nine months? "We expect growth to be slightly negative or zero," said the BCC.

Most economic forecasts tend to be over-optimistic - sometimes hopelessly so - although the British Chambers of Commerce appears more hopeless than most.

Darling has not endeared himself to anyone, but it least he was fairly honest. Reshuffle anyone?