Alitalia faces humbling finale as staff spurn deal

Antonio Amoroso, an Italian transport union official, emerged from a building at Rome’s Fiumicino Airport this week holding a piece of paper that could seal the collapse of Alitalia, the country’s flag carrier.

On it was a handwritten tally of votes from the airline’s nearly 12,000 employees, showing that they had overwhelmingly rejected a deal, mediated by the government nearly two weeks ago, to cut salaries and jobs in exchange for a cash injection from private investors to save Alitalia.

“The Arabised Alitalia has failed,” said Mr Amoroso, referring to the 2014 agreement which made Etihad, the UAE-based carrier, a 49 per cent shareholder. “We are asking the government to reopen talks to find a different solution,” he added.

Mr Amoroso is betting that overwhelming political pressure will lead Rome to proceed to another taxpayer bailout of the Italian airline, which has been around since 1947.

For decades, successive Italian governments have propped up Alitalia as a matter of national pride and political survival, ploughing an estimated €7bn into it since the 1970s despite the fact that it rarely turned an annual profit.

At each critical juncture, the sequence has been familiar: mounting concerns about the financial viability of the airline, halfhearted or botched restructuring and privatisation plans, management shake-ups, strikes by angry employees and last-ditch rescue talks.

This time, it may be different. The government, led by centre-left prime minister Paolo Gentiloni, has ruled out the nationalisation of Alitalia, and warned that Monday’s vote was its last chance for survival.

Yesterday, Alitalia’s board said the airline’s recapitalisation was now “impossible”, convening a shareholder meeting for April 27 to pave the way for the airline to go into administration. This means it will either be wound down or sold.

“Europe has too many airlines and the sooner we lose airlines like Alitalia the better we will be,” says Andrew Charlton, a Swiss-based aviation analyst. “Alitalia is like Lazarus with a double heart bypass. It’s dead but won’t lie down.”

In 2014, when the last crisis erupted, Matteo Renzi, the centre-left prime minister at the time, appeared to have found an elegant way to solve the problem, overseeing an entirely private rescue to bring Alitalia into a new, more competitive global partnership.

Etihad would buy 49 per cent of the company, leaving Italian investors, including the big banks Intesa and UniCredit, in control of the remaining portion.

Early on, the strategy appeared to be working, and Alitalia even redesigned its interiors and bought new 1960s-style uniforms for its flight attendants to celebrate the new era.

Net losses at Alitalia shrunk dramatically in 2015, to €199m, from €580m in 2014, raising the possibility that the airline could be profitable in 2017.

But Alitalia officials say that by 2016 it was plunged into a perfect storm, as terrorism hit close to home, with the attacks in France, Belgium and Turkey denting traffic. Other airlines also suffered, but at Alitalia the situation exposed the weakness of its business model and strategy.

On the more profitable long-haul routes, particularly to North America, Alitalia was hampered by its membership of SkyTeam, the partnership with Air France/KLM and Delta, which limited its expansion.

Meanwhile, it suffered fierce competition from low-cost carriers — including at its hub in Rome — on short and medium-range domestic and European routes, which proved devastating.

“The cost base of Alitalia makes competing very difficult,” says John Grant of OAG, an aviation consultancy which calculated that low-cost airlines accounted for 47.7 per cent of flights in Italy this year, compared with 30 per cent in Germany and 26.5 per cent in France.

Silvano Cassano, the chief executive who was brought in at the dawn of the Etihad days in 2014, was replaced by Cramer Ball early last year but the dynamic did not change — and in fact, deteriorated.

By this year, Alitalia was forced to propose a new restructuring plan as losses began to mount again. It involved cutting an estimated 2,000 jobs and imposing wage reductions of up to 30 per cent, on top of a renegotiation of the carrier’s supply and leasing contracts, to reduce costs by €1bn over three years and be profitable by 2019.

But the hit to personnel was unacceptable to the unions, which bargained the terms down to an 8 per cent reduction in wages and less than half the lay-offs.

That was the deal turned down by workers on Monday, leaving Alitalia short of an immediate cash injection of €900m, and an overall €2bn financing package, it needed to keep operating.

If Alitalia is placed into administration — as expected — it will be run by a commissioner with broad powers to operate the company and decide its fate. Among the most frequently mentioned white knights is Lufthansa, given its interest in buying Air Berlin from Etihad, which could make an agreement mutually beneficial.

“Etihad has two European assets that have been losing a lot of money, and it’s trying to find a way to stop putting money into them,” says Andrew Lobbenberg, an analyst at HSBC. “Notwithstanding Lufthansa’s very clearly stated disinterest in Alitalia, conceptually there is a potential trade there.”

One big question is whether a bridge loan from the state may be required to keep the airline afloat — at least to get it through the summer season — and how that would match up with the government’s rejection of any taxpayer bailout as well as EU state aid rules.

On Monday, three ministers involved in the Alitalia case issued a terse but vague joint statement. Its aim, they said, was “ to reduce to a minimum the costs to Italian citizens and travellers”.

There is scepticism that Alitalia can pick itself up again.

Jonathan Wober, an analyst at Centre for Aviation, said: “It hasn’t made a profit since the last century. This is partly down to competition, but also their response to it.”

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