The Killing of Alitalia

♠ Posted by Emmanuel in at 3/19/2008 01:36:00 AM
It's not only Bear Stearns that's in distress. Across the Atlantic, the money-losing and nearly bankrupt Italian national carrier Alitalia is the subject of a political quarrel over its fate. Air France-KLM is proposing to purchase the semi-comatose airline at a heavily discounted price, prompting howls from militant unions, the opposition party, and the mayor of Milan. The airline's unionists are upset over the deal. While the incumbent government backs the sale, the forthcoming elections may see Silvio Berlusconi become Italian prime minister for, what, the hundredth time? He does not back the deal, and government backing is crucial as the Italian government holds nearly half of all Alitalia's shares. Meanwhile, the mayor of Milan wants Alitalia to stick to its agreement to use that city's infamously crappy airport despite it being an unprofitable one to serve. Why does Air France-KLM even bother, I sometimes think. From the International Herald Tribune:

Scuffles broke out as Air France-KLM's chief executive, Jean-Cyril Spinetta, met Tuesday with union leaders at Alitalia, the ailing Italian airline whose board has approved an offer from the French-Dutch carrier of €747 million.

As Spinetta carried out a series of meetings in Rome, Alitalia shares plunged for a second day. The stock has lost 48 percent since the company said Sunday that the board had approved Air France-KLM's $1.2 billion offer, which values Alitalia at about 10 euro cents a share compared with the 53-cent closing share price Friday. The shares closed Tuesday at 27.6 cents.

Maintenance workers briefly scuffled with police before Spinetta's arrival at a meeting and eggs were thrown, according a person at the scene who declined to be identified, fearing reprisals. One worker sustained a head injury, the ANSA news agency said.

Spinetta already has a green light from Alitalia's board and the Italian government, which owns 49.9 percent of the carrier, but he is having a tougher time with the unions, which have already promised to fight the accord in its current form.

Unions and several senior politicians in both major coalition groups have said that Air France-KLM is attempting to pick up Alitalia at a fire sale price. Spinetta has warned that if the unions do not give their approval to the offer by month's end, it will be rescinded.

Even if he gets through the unions, Spinetta's road to the acquisition remains lined with obstacles and it is not yet a foregone conclusion. Spinetta will need the approval of whatever government emerges as the winner in the Italian general elections next month. With polls showing a lead for the opposition leader Silvio Berlusconi, who has been critical of the Air France-KLM takeover plan, Spinetta might not get the rubber stamp from the government.

An important member of the center-right opposition coalition, the National Alliance party leader Gianfranco Fini, came out Tuesday against the deal as laid out at the weekend, Reuters reported from Rome.

Still, Spinetta might have an even bigger problem in the form of Mayor Letizia Moratti of Milan. Milan is the leading shareholder in SEA, the company that runs the city's two airports - Linate, near the city center and the much maligned Malpensa. Air France-KLM wants to radically scale back Alitalia's flights at Malpensa.

SEA is suing Alitalia for €1.25 billion for not meeting an obligation to make Malpensa a hub. In return for a major upgrading of the infrastructure of the airport, Alitalia had agreed to move workers and resources to Malpensa, something that will not happen if the Air France-KLM plan is adopted.

Spinetta has said that the Italian government must accept to pay any damages that are awarded SEA as a result of the sale of Alitalia. Rome asked SEA on Tuesday to revoke the suit, but Moratti said that she was ready to take responsibility for the deal falling through and pushing Alitalia into bankruptcy.

"The lawsuit was meditated over for a long time and is based on solid arguments," Moratti said in an interview published Tuesday in the newspaper La Repubblica. "For us to withdraw the suit is unthinkable," she added.

"Air France has put forth such outrageous proposals that I have been led to doubt that they really want to buy Alitalia. Before arriving at bankruptcy it is obligatory to search for another solution. But bankruptcy would not be a catastrophe," Moratti said.

Politicians of different persuasions and from different administrations have approved about €4 billion in investments to the airline since 1998, while the company has proven incapable of returning to profit.

Spinetta's plans for Alitalia include cutting 1,600 jobs at the airline - 600 flight attendants, 500 pilots and 500 ground crew - and an unspecified number at the maintenance unit that is only partially owned by the airline.

The pilot's union, Anpac, has already said that it will oppose the Air France-KLM takeover unless there are changes. As it stands, the deal penalizes Alitalia and helps the French-Dutch carrier overcome its own problems, the union says.

Anpac and other critics of the Air France-KLM offer note that it has been changed significantly since the first nonbinding offer came in December. At the time, the ratio of the deal's share swap was 70 Alitalia shares for each Air France share, while the plan announced Sunday calls for 160 to 1. If the deal had gone through in December, Rome would have owned 3.4 percent of the enlarged company. At present share prices, it stands to own just 1.5 percent.