Alitalia plan not enough, say critics, as Air France keeps quiet

Reuters

By Valentina Consiglio and Agnieszka Flak

ROME, Oct 11 (Reuters) - Italy's government drew fire onFriday after stitching together an emergency bailout forAlitalia that critics said should involve less taxpayer moneyand more long-term strategy, while top shareholder AirFrance-KLM refused to commit to the plan.

Alitalia, which last turned a profit in 2002, needs tosecure funding of 500 million euros ($676 million) by Saturdayor risk its planes being grounded. Creditor Eni hasthreatened to cut fuel supplies unless the airline can show itis a business "we expect to exist six months from now."

After being turned down by several national companies, Romefinally found life-saving funding for Alitalia late Thursday,persuading the state-owned post office to commit to providing 75million euros via a capital increase while the governmentprovides another 75 million in loans. But the emergency planrelies on existing shareholders giving another 150 millionbetween them and the country's banks stumping up 200 millioneuros in new loans, sources close to the matter told Reuters.

By midday Friday, according to other sources with knowledgeof the proceedings, the government had secured 225 millioneuros, with a consortium of banks - as yet unnamed - providing150 million euros alongside the post office's commitment.

Business leaders said the state-funded plan lacked a clearstrategy to make the airline a long-term viable business.

"If it's an emergency band-aid to stop the bleeding, so beit. But we'll need to have a serious think about a plan in themedium and long term once and for all," said Giorgio Squinzi,the head of business lobby Confindustria.

The bailout will be presented to Alitalia's board on Fridayafternoon. It is regarded as only a stop-gap until AirFrance-KLM, which owns 25 percent in Alitalia, can agree a dealwith the airline's other investors for it to double its stake.

But the Franco-Dutch carrier, in the middle of its ownrestructuring, declined to say on Friday whether it wouldparticipate in the rescue plan, adding it would place toughconditions on giving any help. The group voted against a cashcall when it was first proposed last month. If it does notparticipate in the capital hike, it risks being overtaken byItaly's post office as the top shareholder.

Air France-KLM Chief Executive Alexandre de Juniac is opento taking over its Skyteam alliance partner to bolster itsaccess to the Italian travel market, Europe's fourth largest.But approval from his board, which includes the French state andsceptical members of KLM, is less certain.

The support of Alitalia's domestic investors is also in thebalance. Its second biggest shareholder, the Riva family, hashad its assets seized in a judicial investigation, including itsAlitalia's 11 percent stake.

The airline is currently owned by a disparate group of 21investors including bank Intesa Sanpaolo and highwayoperator Atlantia, a consortium pulled together in 2008by then prime minister Silvio Berlusconi after he rejected atakevoer by Air France.

MORE DEBT

Cash-strapped Italy is realising it may not be able to holdon to its flag carrier, once a national icon which had itsuniforms designed by Armani but now seen as a symbol of thecountry's economic malaise.

However, with the current loan arrangement, Rome is puttingoff a politically sensitive sell-out to Air France-KLM, analystssay, even though no other option makes business sense.

"The state is re-nationalising its flagship airline withtaxpayer's money. Of the 500 million euros to be injected, 300million euros are new debt," said Andrea Giuricin, a transportanalyst at Milan's Bicocca university. "This solution will onlyallow Alitalia to survive, certainly not grow," he said.

At stake: What the government says is a strategic nationalasset, 14,000 jobs, and fears that some of Alitalia's domesticroutes - which play an important role because of Italy's patchyrail and road links - could be cut if a foreign buyer took over.

"The logical way to save Alitalia is for Air France to takeover the basic operating core and attach it to its own system,but this means getting rid of the entire Alitalia back-officestructure and I don't know if the Italians are ready for that,"said the head of a European airline, asking not to be named.

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