ANALYSIS: 12 January 2009

Alitalia: a new beginning?

Tomorrow (January 13) a streamlined, re-vamped Alitalia is due to be re-launched. It has been a long time coming, since the Italian government boldly announced several years ago that it wished to sell its 49.9% stake in the national carrier.

Back in January 2005, ABTN/BTE wrote critically about the belated decision by Italy's then prime minister Silvio Berlusconi to sanction talks with Air France KLM over a possible takeover of the chronically loss-making airline.

The London Financial Times, with unusual bluntness, had earlier gone one step further by brutally asking ‘What is the point of Alitalia?'

Silvio Berlusconi

Four years on, while a considerable amount of water has flowed under many bridges, the scenario is not much changed. Mr Berlusconi is prime minister once again and Air France KLM is in talks with the new owners of Alitalia, a consortium called CAI, about buying a 25% stake in the carrier.

It is a saga that while replete with twists and turns seems to have no end. It merely seems to go round in circles.

But it is a story in which few people can take any pride. Alitalia has not made a profit for a decade. In a normal industry, such a hopelessly loss-making company would have long gone bankrupt. But aviation is not like other industries. For better or worse - and it is usually the latter - politicians interfere.

There is little doubt that, in contravention of EC rules, Alitalia has been regularly bailed out by the Italian government with its 49.9%stake to protect. Jobs may have been lost but there would also have been many created as other, better run airlines than the shambles that has been Alitalia, took over its role. This is how the market, to which all seem to pay token homage, works.

But more than jobs, it was national pride that was at stake. Italy, like other many other countries, did not want its national carrier to go bankrupt or even fall into other foreign hands. (You only have to look at the US rules on foreign ownership of airlines to see a parallel.)

So a cynical saga was played out with the Italian government ostensibly considering but eventually rebuffing a line of overseas suitors seeking the not quite so fair hand of Alitalia. Even when Air France KLM, for reasons beyond logical explanation, wanted to take over the airline last year, its hopes were dashed partly by Mr Berlusconi declaring the airline must stay in Italian hands.

This was the time when Mr Berlusconi was successfully running for office in the country's general election last spring. His predecessor as prime minister Romano Prodi had made clear he favoured a French-Dutch takeover.

Mr Berlusconi not only rejected this but also later seemed to back Lufthansa as a partner for Alitalia. No doubt this helped bring the Milan-based Northern League, which also favoured the German connection, into his coalition. Mr Berlusconi now seems to have opted for the French-Dutch connection which is preferred by CAI. But as we said, few people come out of this sorry saga with much credit.

So tomorrow, the newly re-vamped Alitalia takes to the skies. It has been merged with a smaller rival, Air one, it has had its workforce significantly pruned and it has had its network cut. Its indebtedness as of the end of last November was €1,228m and there is already a formal complaint against it lodged with the EC.

This was filed by the European Low Fare Airline Association (ELFAA), whose members include bruisers like Ryanair and easyJet, which claims the recently introduced airport tax of €3 per passenger departing from Italian airports is a subsidy for CAI/Alitalia. This tax, said ELFAA, "ensures a constant flow of unlawful aid to CAI/Alitalia but also unloads the cost of the subsidies onto CAI's competitors."

But after the last five years, this could almost be described as nit-picking. What is a few hundred million Euro between a government and its favourite airline?

More to the point is the damage all this has done for the credibility of the European aviation industry or to the case for badly needed consolidation. When the story started, the one word best able to describe European aviation was "overcapacity." The same word still applies today.

Nothing much has changed and few people can say they have genuinely benefitted from the whole business. And how long will the streamlined Alitalia last before it needs help is anyone's guess. There are already suggestions that CAI may have bought a disconcerting cross between a white elephant and a lame duck.

More than ever an answer is needed to the Financial Times' pertinent question.