Renewed turbulence for Italian flag carrier

Just five years after major restructuring, airline is again on brink of collapse

And now for something completely different – Italian airline Alitalia is in crisis...again. Given that this former state run, now privatised flag carrier has actually recorded an annual profit only four times since its foundation in 1946, this is hardly surprising.

The other day, energy company Eni threatened to cut off petrol supplies this weekend if Alitalia did not pay some of its €30 million fuel bill, prompting one TV comic to advise Alitalia passengers to please turn up at the airport check-in with a jerry can of fuel. By some estimates, Alitalia currently needs an immediate €100 million cash injection in order to say in business.

Certainly, the Alitalia-CAI figures do not look good. Between January 1st and June 30th this year, the company lost €294 million, close to €2 million per day: it currently has €1 billion of debt. Transport analysts claim that, given its annual operating costs of €3.7 billion, the airline needs approximately €10 million a day to keep the show in the air.

The problem is that Alitalia has already cried “wolf” a number of times in the last 20 years. The scenario is this: first, thanks to appalling administration, the company goes into crisis; secondly, the business community, politicians and trade union officials express “shock, horror”; third, a rattle bag rescue package is assembled; finally the company lives to fly again.


All of the above, and much more besides, happened back in 2008 when the fate of Alitalia became a general election issue. The then prime minister Romano Prodi thought he might have resolved the Alitalia mess by agreeing to sell the state’s 49.9 per cent share in the semi-privatised company to shareholders Air France-KLM.

But the Prodi government fell. In stepped centre-right leader Silvio Berlusconi, banging a nationalist drum and claiming that, if elected, he would block the Air France-KLM deal. Not surprisingly, shortly after Berlusconi's election victory, Air France withdrew its takeover offer, although it remained a shareholder.

To keep his election promise and save Alitalia, Berlusconi convinced 21 “courageous captains” of Italian industry to form a consortium to buy it. He even introduced new bankruptcy legislation allowing Alitalia to be divided in two – one heavily debt ridden (destined for the taxpayer) and the other potentially profitable.

In essence, the new consortium, CAI, was offered the brand name “Alitalia”, the company’s take-off and landing “slots”, 93 aircraft and a vast range of industry know-how. The new Alitalia was also merged with its much smaller, domestic rival Air One, giving it a theoretically dominant position on Italian domestic routes.

The US embassy in Rome, courtesy of Wikileaks, described the whole process thus: "The Alitalia saga is a sad reminder of how things work in Italy and of PM Berlusconi's rather weak adherence to some of the core principles of free-market capitalism. Berlusconi had the chance to let this be handled as a business matter but he chose to politicise it. Under the guise of a rather quaint (and distinctly un-EU) desire to maintain the Italian-ness of the company, a group of wealthy Berlusconi cronies was enticed into taking over the healthy portions of Alitalia, leaving its debts to the Italian taxpayer…The way in which this deal was done – cronies, political interference, preference for Italian buyers, custom made laws – provided the world with a clear reminder of Italy's investment climate shortcomings."

The Italian taxpayer was left with an estimated €3.1 billion bill.

Worse still, the new Alitalia has proved a miserable failure, losing €1.25 billion in the last five years.

Internal competition from EasyJet and Ryanair (thanks to EU legislation) and from high speed train services (especially on the Rome-Milan route) has not helped.

Nor have global economic recession and the spiralling cost of fuel (up 42 per cent in the last three years).

So, what now for Alitalia-CAI? Current prime minister Enrico Letta and his government are desperately searching for another investor. All offers are welcome.

Could it be that Air France-KLM, which currently has a 25 per cent holding and which, in 2008, offered €2.5 billion plus coverage of debts, will get it a lot cheaper this time? Stand by for the next Alitalia crisis.