Alitalia: Who Wants this Airline?

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The Contenders

The interest of the three Italian groups isn't surprising either: All are major stars in the economic and political orbit of Prime Minister Romano Prodi's center-left government. One group is led by financier Carlo De Benedetti, front man for the M&C risk-capital fund, with its partners Cerberus European Investments and the ELQ Investors of Goldman Sachs.

A couple of the high-flying Italians reportedly with him on the deal include Alcide Leali, the former owner of Air Dolomite and now of finance-vehicle Lefinalc; Diego Della Valle, of Tods shoes fame; and Nerio Alessandri, the founder of workout-equipment star Technogym.

Another group in the running is the investment wing of Italy's largest bank, Unicredito, headed by Alessandro Profumo, who has close ties with Prodi. Many analysts expect Unicredito eventually to pair up with a larger industrial partner, perhaps Lufthansa or Air France-KLM, which already holds a 2% stake in the company, though Air France has repeatedly denied interest in buying Alitalia outright.

The third Italian would-be groom is airline entrepreneur Carlo Toto, whose QuestAP Holding owns Air One, the No. 2 airline in Italy, with about 30% domestic market share. Air One has a commercial alliance with Germany's Lufthansa. Toto has the financial backing of Corrado Passera's Banca Intesa San Paolo, Italy's second largest bank, and can boast years of industrial experience, which may be needed to relaunch the airline. However some feel he's the weakest of the Italian candidates.

No Sale?

"Air One is at a disadvantage," says Professor Carlo Scarpa, of the University of Brescia and co-founder of Italian economic analysis Web site www.lavoce.info. "Much of its revenues stem from the Rome-Milan leg, and if it takes over Alitalia it will most likely be asked to give up slots by the antitrust group and hence lose value."

Scarpa believes that until the five groups fully reveal their strategic industrial alliances it will be difficult to determine who will make the next cut. "Much depends on who the American private-equity funds align with," he says. "My guess is that in the end it will come down to De Benedetti and Unicredito, partnered with a strong industrial leader."

The risk also exists that at the end of the process Alitalia will find no buyer at all. Prodi has invested a lot of political capital into this privatization, the first since he took charge in May, 2006. But the economic reality is that Alitalia should have gone bankrupt years ago, and any effective industrial plan will involve hard choices in terms of employment and strategic regional development.

It's possible that, even with Alitalia's well-publicized problems, the Prodi government won't be able to resist pressure from unions and other interest groups who would prefer to see the airline remain in state hands. Already it has announced plans to keep about 5% interest in the carrier. But if the political will falters to let others fix Alitalia, the prospects for Italy's flagship carrier are bleak.

Courtney Walsh writes for BusinessWeek.com from Rome.