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Alitalia Continues Chase for Air Malta Acquisition
Alitalia is continuing their chase for a 49% stake in Air Malta after local Maltese media have reported that the Italian carrier is to propose a four-year business plan to the government, outlining Alitalia’s vision for Air Malta between 2016 and 2020. The plan, which is yet to be officially published, highlights a reduction in frequencies to European destinations by up to one third and focuses more on routes within North Africa and the Middle East. The focus would include an increase in frequencies to destinations such as Tunis, Tripoli, Casablanca, Larnaca and even expand into destinations such as Jeddah in Saudi Arabia.
Opposition from Malta’s Nationalist Party
The opposition party to Malta’s current government, The Nationalist Party (PN), has asked the government to decline the reduction in routes and according to the Times of Malta also insisted that the government “must not give up control over route changes.” PN MPs Claudio Grech, Antoine Borg and Censu Galea stressed to the government that “the main stakeholders should have a clear picture of the situation,” implying that more transparency of plans should be visible to all people affected. “It is vital for unions to have access to the business plan, which paves out the future of the airline,” they added.
PN also argued that releasing these business plans to the unions and to all staff affected by these potential changes will remove all speculation regarding the futures of the workers. Grech, Borg, and Galea also insisted that the discussions of such plans should be held with all four unions together and that all workers affected by these changes should be kept in the loop. In terms of Alitalia’s acquisition, they said to the Times of Malta that they “are not against introducing a strategic partner” but added that Alitalia should not receive the 49% of Air Malta “without giving any substantial contribution to the airline’s capital,” suggesting that Alitalia invest the capital to maintain the airline’s current operations in Europe and in it’s current network rather than cutting routes in the airline.
It is significantly surprising that Alitalia wants to make this move on Air Malta. According to an article from the Maltese Independent, the Italian carrier is still making a loss of €500,000 per day. However, Luca Cordero di Montezemolo, the Chairman of Alitalia, has claimed that the airline is seeing better days as they are aiming to break-even by the end of the year. He was also confident about this target as he mentioned to the Italian Transport Committee that he would not use a single penny of taxpayer’s money in trying to achieve this target.
This break-even should be achievable especially as Etihad Airways, an airline that has a 49% investment stake in the airline, increased their own profits by 41% at the end of 2015, which gives some sort of hope that Alitalia will get back on their feet and that the Air Malta acquisition should be a way of surpassing their break-even point as well as surpassing profit targets and margins. Alitalia plans to invest €400 million in the airline this year and such investment has given the airline the opportunity to expand their route portfolio to places in Asia such as Beijing, China. Either part of most of this investment would have come from Etihad Airways themselves as they are an investor who will want a return on investment but would also like to see results within their investment, Air Malta being a potential result for the Abu-Dhabi based carrier.
What does this acquisition mean for Alitalia?
On an analytical front, the 49% acquisition of the Government owned airline would give Alitalia the chance to add more flights into Malta from mainland Italy as well as from mainland Malta. The cuts that Alitalia wants to make on Air Malta in terms of European routes would be a move to remove competition per se and monopolize the European market to Italy and Malta accordingly. The acquisition could also be seen as a clever move to link Italy and Maltese routes together in more of an efficient manner to benefit Maltese and Italian communities even further in terms of providing more links to the two countries. Air Malta and Alitalia could easily take advantage of codesharing opportunities on particular routes which would be beneficial for each airline. Air Malta could take advantage of the codeshares on Alitalia’s routes outside of Europe to the U.S and Asia.
The airline would have to be careful with how they play this acquisition as in 2008, the Italian carrier nearly went into liquidation due to extensive losses within the airline. Alitalia is a big asset for the Italian Government as they generate €5 billion per year into their economy. If they invest too much into the business and it fails, then both airlines could be placed into jeopardy as they would have to recover costs through staff cuts, route withdrawals and much more. After all, Air Malta did say in April 2016 that the deal with Alitalia will not go ahead if there are no financial or physical benefits for the airline.
Benefits for Air Malta
This acquisition may have been a follow-up of previous agreements made between the two carriers. They first signed an agreement to become strategic partners, meaning that Air Malta would be part of the Etihad Airways network, similar to Alitalia’s current position. It did have a clause in that agreement that Alitalia would eventually make a 49% acquisition of the airline. The agreement also stated that Air Malta would be able to receive a centralised system of fuel and spare parts. Furthermore, the acquisition would be beneficial for the airline as they would be able to receive capital investment from outside of the Maltese mainland, meaning that there would be further room for an expansion of the airline’s fleet and route portfolio respectively. Investment of this nature has not occurred in Air Malta since 2012, suggesting that outside investment is key to the growth of Air Malta.
In terms of the future of this acquisition, it is something to definitely look out for because if the 49% stake is acquired by Alitalia, it will be interesting to see whether they go through with the unpublished plans and also how they will deal with the unions that will be forever desperate and keen to know the future of the workers at Air Malta.
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