In an unexpected twist of the never-ending saga of Alitalia’s restructuring, German carrier Lufthansa is now becoming an interested party in the operation. After expressing a lukewarm interest at various stages throughout the entire process, that has been progressing for the past two and a half years, and after being dismissed several times for the high number of layoffs that its plan would entail, Lufthansa is now returning to play a major role as a crucial crossroad seems to be approaching.
After an October 15 deadline passed by without any binding expression of interest was submitted to Alitalia’s special administrators, airport consortium Atlantia, who is planning to take a majority ownership in the new Alitalia company together with state-owned railway operator Ferrovie dello Stato, issued a press release requesting more time to present a viable plan and expressing their disappointment towards the industrial partner Delta Air Lines’ unwillingness to commit more capital to the operation.
The American carrier, in fact, has maintained its position that it is ready to invest 100-120 million Euros in the new venture, approximately equal to 10-12 percent of the new Alitalia, but it is not ready to increase its equity stake in the venture.
Consequently, discussions between Atlantia, Ferrovie dello Stato and Lufthansa have been intensifying over the past week as the German carrier’s interest in Alitalia is becoming more interesting to the other members of the consortium. Lufthansa had initially proposed a commercial partnership with no equity investment, but subsequently its plan has evolved turning into a tighter partnership that would see the Cologne-based carrier invest a sum of 150 to 200 million Euros after a preliminary phase, and gradually acquiring a bigger and bigger ownership stake in the company to transform it into a private airline where Lufthansa would become the majority controlling owner.
This would be achieved by progressively buying out some of the initial investors, such as the Italian Ministry of Finance, that has accepted to transform into equity the 100 million Euros credit it has towards Alitalia as a result of the 900 million Euros bridge loan extended in May 2017, and Ferrovie dello Stato.
Lufthansa appears now to be the favored industrial partner for Alitalia, but there are still some obstacles to be overcome. In Cologne they have softened their position with regards to personnel and fleet reductions to be imposed on the new Alitalia, but Lufthansa’s plan would still see the Italian flag carrier reduced to 75 aircraft, transforming the airline into an all-Airbus carrier, with the Embraer fleet transferred to the Italian subsidiary Air Dolomiti, and employees numbers slashed by approximately 50 percent with the loss of approximately 6,000 jobs.
The current Italian Government has campaigned quite heavily on a ‘zero layoffs’ relaunch plan for Alitalia and most likely would have to face significant political backlash should the airline downsizing be this substantial.
Atlantia and Ferrovie dello Stato initially requested eight weeks to draft a binding proposal for the rescue plan, but they obtained only until November 21 from the special administrators, mainly owing to Alitalia’s dwindling cash flow. According to the latest estimates from Italian financial newspapers Il Sole 24 Ore, Alitalia still has only 310 million Euros in its accounts, and that would include 160 million Euros of advance sales for future tickets, which should technically be considered a liability.
The carrier has been burning approximately 900,000 Euros a day and at the current rate it would run out of cash by the end of the year. Therefore, the Italian Government has granted another bridge loan of 400 million Euros that is intended to see Alitalia through the implementation of the new restructuring plan that will need to be fully operational by March 2020. This loan will be an onerous loan with a 10 percent interest rate and in uncertain whether the European Commission will investigate this decision to understand whether it constitutes state aid.
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