An Italian (and Franco-Dutch?) Rescue for Alitalia

Posted by: Carol Matlack on September 25

Who will save Alitalia? With Italy’s flag carrier only days away from a possible crash landing into bankruptcy, new talks are underway with potential investors, and with airline union leaders who scuppered earlier rescue plans. And while Prime Minister Silvio Berlusconi’s government has promised to keep Alitalia in Italian hands, Air France-KLM could end up with a substantial minority stake.

The government, desperate to avoid a shutdown that would throw 19,000 Alitalia employees out of work, is leaning hard on unions to accept a deal in which it would be sold to CAI, an investment consortium headed by Roberto Colannino, chief executive of scooter maker Piaggio.

The pressure seems to be getting results: On Sept. 25, the last of four major Alitalia unions that had previously opposed the CAI deal agreed to support it. CAI, which earlier had withdrawn the $1.5 billion offer in the face of union opposition, now has put it "back on the table until Oct. 15," a spokeswoman says.

In the meantime, pressure on five smaller holdout unions will only increase. Italy's airline regulator has warned it could ground Alitalia within days because the airline lacks cash for essential operating expenses. The CAI proposal calls for selling off some parts of Alitalia, laying off about 3,000 workers, and merging the remaining business with Italian carrier Air One.

The revival of the proposal creates an opening for Air France-KLM, which tried earlier this year to buy Alitalia, but was blocked by Alitalia unions with tacit support from the Italian government. CAI has said it expects a foreign airline to take a minority stake in a revived Alitalia, but has never given details. Air France-KLM says it "remains interested" in taking such a stake, but declines further comment.

But there are signs that Air France-KLM is maneuvering into position for a substantial holding. Government representatives have met this week with Francesco Mengozzi, a former Alitalia CEO who's now a consultant to the Franco-Dutch carrier, according to sources close to the talks. Air France-KLM has long coveted Alitalia’s route network, which would cement its dominance in Continental Europe, while allowing it to retool its long-haul network for greater efficiency. Even a minority stake would make it easier to integrate Alitalia's network into its Skyteam Alliance, of which the Italian carrier is already a member.

And it's clear that Air France-KLM has the financial means to take a sizeable stake--perhaps as much as 20% to 25%, according to press reports in France and Italy this week, although neither Air France-KLM nor CAI would confirm them.

Could someone else beat Air France-KLM to the punch? That looks unlikely. Lufthansa took a look at Alitalia last year but backed away without making an offer. British Airways, heavily dependent on transatlantic business-class passengers, is bracing for shockwaves from the crisis sweeping the financial districts of London and Wall Street.

Of course, Alitalia's unions could spoil the party once again. But public opinion has turned sharply against the unions, especially after news reports showed union protesters cheering, "Better a collapse than those bandits!" when CAI withdrew its earlier proposal. In the end, Alitalia's “Italian solution” could have a distinctly Franco-Dutch flavor.