A deal between Italian railway group Ferrovie dello Stato, Delta, and the Atlantia infrastructure group to save airline carrier Alitalia, has fallen through. In November, Ferrovie dello Stato admitted it was unable to bring these potential partners to the table; German airline Lufthansa has also withdrawn its support as well after initially offering a commercial partnership.
But the government has not completely given up on the airline. Newly appointed administrator and lawyer Giuseppe Leogrande has received a “bridge loan” of 400 million euros meant to keep Alitalia in the air until May 31st, 2020 – their deadline for attracting a new set of investors. This loan was approved by 5-Star Movement and Democratic Party (PD), Italy’s ruling coalition, and Leogrande follows three previous administrators who were unable to secure funding for the airline.
This is not Alitalia’s first loan. Since May 2017, the airline has received 900 million euros following a failed restructuring attempt, and to date this amount – and the staggering 150 million euros in interest due on it – has not been repaid.
This is not the only time the airline has faced financial trouble. Despite Delta Airline’s chief executive Ed Bastian’s optimism, in which he has said he believes that Alitalia “has a promising future with the right ownership structure in place”, it is estimated that the airline is losing between 700,000 and 900,000 euros per day. In the past decade, Alitalia’s best year was 2011 with a loss of around 69 million, which then increased to 280 million the following year and to 580 million in 2014.
There are a few reasons behinds the company’s financial woes. Alitalia faces competition from international airlines, including Middle Eastern carriers, and budget airlines like Ryanair and EasyJet. And they have an outdated aircraft fleet consisting mostly of Boeing 777s and Airbus A320-200s, which is set to shrink when their leasing contracts end in 2020.
Perhaps one of the biggest reasons for Alitalia’s troubles lies in the number of personnel. The airline currently has approximately 12,000 employees on staff, and turbulent unions that have steadily defended their members’ jobs through numerous strikes and negotiations. The administration recently presented a plan that would have cut 1,600 jobs from the workforce, but a union has been able to stave off the cuts via strikes that continue today – one on December 13th, cancelled flights from the 12th to the 14th.
It appears that the best way for Alitalia to draw in a viable investor is through massive restructuring – one that has been threatened since former shareholder Etihad Airways withdrew in 2017, and a condition for some of the airlines considering investment. Lufthansa, for example, has expressed interest in Alitalia from October 2019 – but only if the company agrees to make up to 6,000 layoffs, a plan that has been understandably unpopular with the workers union.
If the airline is unable to become more attractive to investors, Italy stands to lose a major source of tourism revenue and connectivity to the rest of the world. In 2018, tourism contributed around 41.3 billion euros to the economy, and there are projections that these numbers will only continue to grow. Deputy Prime Minister Luigi Di Maio agrees that Alitalia’s future is essential to the health of Italy’s tourism industry, writing on Facebook, “We need a new Alitalia to contribute to tourism in the country, taking tourists from all over the world on long-range routes and bringing them into the world’s most beautiful country – Italy.”
Those who stand to lose the most are working-class Italians who have already paid for Alitalia’s losses; it’s estimated that in the 45 years since its inception, Italian taxpayers have poured around 9.2 billion euros into the airline – understandably frustrating for many to see such a low return on this amount.
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Investigation from the EU Competition Commission
It’s difficult to guess precisely why the coalition that could have saved Alitalia has dissolved.
Italian Economy Minister and Five Star party member Stefano Patuanelli put the blame squarely on a difficult market; he has said to a Senate Commission that “It’s evident that right now a business solution doesn’t exist”, and that the company “has a dimension that the market has difficulty accepting”. Patuanelli has also said that “We are not providing [state] aid to the [Alitalia airline], but for the management of a sale process that unfortunately has taken a very long time, because the market has not shown interest in the national airline” – a statement that contradicts statements made by Lufthansa.
Italy’s coalition government is hard-pressed to continue defending the funding of Alitalia; Patuanelli claims that the government was only putting more money into Alitalia because it believed that the company would eventually recover and the state would be repaid. “If I thought that Alitalia had no hope, and that it will always be terminally ill, I would be the first to pull the plug”, he said.
But the minister may be forced to make this decision sooner than expected, as the EU Commission plans to investigate Italy’s loans to Alitalia as a breach of state aid rules. The country is currently facing extra scrutiny as the current government is also considering putting hundreds of millions in loans into its struggling steel industry, assuming Rome is unable to come to an agreement in the private sector to resolve this problem.
As Alitalia is currently Italy’s only national airline, it would be ideal to keep the carrier. But if unions and potential buyers cannot come to an agreement, there may be no liftoff to see this plan to fruition.