Alitalia Faces Further Challenges as Sale Deadline Looms

Italy’s national carrier Alitalia is facing new challenges as the Oct. 31 deadline approaches for the end of the sale process for the airline, which declared bankruptcy in 2017. The deadline for offers was delayed from earlier this year after the Italian general election failed to produce a clear winner and a coalition government was formed.

The decision was also made to delay the repayment of a government-guaranteed bridge loan of €900 million, now due on December 15. Rising labor costs, increased competition and a high level of debt were cited as reasons which led to the airline’s situation.

The European Commission has undertaken an investigation into the loan which if not repaid may be seen as a subsidy from the Italian government. This would breach Commission regulations which state that any cash injections into state companies must have terms equivalent to market conditions. When a similar loan was made in 2008 to rescue the carrier, Ireland’s Ryanair took the case to the European Courts contesting the legality of the situation, but the court did not side with the Irish carrier.

At the time of the loan in 2008 Italian Prime Minister Silvio Berlusconi rejected a bid from Air France to purchase Alitalia. This was the second time that the Italian government had “bailed out” Alitalia, having previously done so in 1997.

Since the airline went into administration in May 2017, buyers had been sought for the carrier, owned 49 percent by Etihad Airways. The key players in the running have included the U.K.’s easyJet and Hungary’s Wizz Air with Germany’s Lufthansa being touted as the frontrunner in April by a government minister. However, the inconclusive result of the election changed things considerably resulting in the six-month delay in the sale process and to the loan repayment.

Over the summer, the main political party in the coalition government has announced that it will fulfill their campaign promise for the state to keep a controlling share in Alitalia, which may make the purchase less attractive for any potential buyers. As a result of this nationalist policy, the government has made statements about relaunching the airline with the possibility of attracting finance from a Chinese-based consortium to take a share of up to 49 percent of the airline, which would include non-competing airlines such as Air China and SkyTeam partner China Eastern.

Italy’s Minister for Labor and Industry told the Italian parliament in July that the plan for Alitalia would be “neither rescue, nor survival, but a re-launch within a strategic transport plan that makes Alitalia a competitive national carrier.”

Though Alitalia has seen revenues grow by almost 5 percent in the first nine months of 2018, it has registered a loss of €59 million for that period. The airline has also seen an increase in competition from the recently rebranded Air Italy, owned by Meridiana and largely backed by Qatar Airways.

Though Air Italy’s network and fleet size is no match for Alitalia, the might of the Doha-based carrier behind it could lead to increased competition and reduced revenue on Alitalia’s higher performing routes and be seen as a deterrent to possible buyers. Ironically, Alitalia was offered the opportunity to buy Meridiana in 2011 but chose not to take on the then Sardinian-based carrier which now operates its base from Milan.

Finally, to further compound Alitalia’s woes this week, three unions acting on behalf of the airline’s cabin crew and pilots are seeking reassurance from the Italian government and warned of potential industrial action if reassurances are not presented. A representative for one of the union’s told online news source AIN: “We know nothing. We are speaking to the commissioners, but we want an answer from the government on one simple question: what is happening?”

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John Flett

John has always had a passion for aviation and through a career with Air New Zealand has gained a strong understanding of aviation operations and the strategic nature of the industry.

During his career with the airline, John held multiple leadership roles and was involved in projects such as the introduction of both the 777-200 and -300 type aircraft and the development of the IFE for the 777-300. He was also part of a small team that created and published the internal communications magazines for Air New Zealand’s pilots, cabin crew and ground staff, balancing a mix of corporate and social content.

John is educated to postgraduate level achieving a Masters degree with Distinction in Airline and Airport Management. He has been the course director of an undergraduate commercial pilot training programme at a leading London university and a member of Heathrow Community Trust’s ‘Communities for Tomorrow’ panel.

John is currently living in Canada and is contracted as an external instructor for aviation-related organizations.

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