Government divisions on Alitalia put the future of the company in doubt

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Government divisions on Alitalia put the future of the company in doubt

17 Dicembre 2007

The Prodi government is divided on how to solve the crisis
of Italy’s flagship airline Alitalia. Members of the centre-left coalition are
undecided whether to sell the government stake in the company to Air France-KLM
or the Italian domestic carrier Air One. But the decision needs to be taken
soon as the survival of the company would be in doubt if the offers are
withdrawn. In the meantime, Alitalia is losing money at a rapid pace leaving
its deficits to be paid by the Italian taxpayer.

The financial problems of Alitalia have
been known for a long time. It is estimated that since 1999 the company has
made losses of more than 3 billion euros. Its current debt is reported at 1.2
billion euros and it is clear that Alitalia would have gone bankrupt long ago
if the Italian government had not injected large amounts of public money on a
regular basis. Since January 2007, the Italian state has sought private bidders
for its 49.9 per cent stake in the airline. Earlier this month, two serious
bidders finally emerged as Air France-KLM and Air One presented their offers.
While this should have been a cause of relief, it immediatley became apparent
that the government is unable to make a decision on which offer to accept. The
dividing line seems to run between Tommaso Padoa-Schioppa (economy minister)
and Pier Luigi Bersani (minister of economic development) who are favouring Air
France-KLM’s offer and Francesco Rutelli (vice premier) and Massimo D’Alema
(foreign minister) defending the Air One bid.

Independent financial consultants have
strongly recommended to sell Alitalia to Air France-KLM on the grounds of
future economic viability: Air France-KLM’s profits are almost twice as high as
Air One’s turnover. Furthermore, Air One is itself highly indebted and
financially dependent on the support of Intesa-San Paolo, Italy’s biggest bank.
Those favouring Air One’s offer say they prefer an Italian solution to deal
with Alitalia’s troubles. But it is also clear that the government is under
pressure from trade unions to reject Air France-KLM’s bid as it is more likely
to involve restructuring as well as future job cuts. In fact, the major
transport trade unions announced strikes if they do not have a sufficient say
in deciding on the offers.

The urgency to take a decision on
Alitalia should be obvious to everyone. The company lost 255 million euros in
the first nine months of the year alone and the bill for the losses cannot be
picked up by the state indefinitely. Not only does it represent a heavy burden
on the public finances but the continuous injection of state money into an
ailing company is illegal under EU law. The repeated delays of the
privatization process deeply concern the top management of the airline. Its
managing director, Maurizio Prato, said in September that he was surprised “by
the general refusal to accept reality and by the fact that a company in this
state does not have the possibility, even though it is listed on the stock
market, to make autonomous decisions even if this is needed for its survival”.
On December 14th, he went still further by stating that he would
resign if a decision is not taken in the coming days. It is no secret that
Prato would go ahead with the sale to Air France-KLM if he was not constrained
by government indecision.

It has been observed that during this
crisis Romano Prodi has either remained silent or made ambivalent comments. He
is said by some newspapers to favour Air France-KLM’s offer and by others to
prefer Air One. He also does not seem to be especially worried about the
pressure of time. The government said that it is not necessary to come to a
decision before the end of the year. Prodi added that he first needs to wait
for a detailed and final analysis. However, the urgency to make a choice was
driven home by a recent Financial Times article which reported that Air
France-KLM might withdraw its offer if no decision is reached soon.