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Alitalia’s Rescue Is Not Given As Air Frace-KLM May Still Bail Out


Skift Take

The woes of dysfunctional European airlines and the bailout unerringly mirrors the continent's woes.

Shareholders of Alitalia will vote on Monday on a 300 million euro ($407 million) capital increase to keep the near-bankrupt Italian airline flying, but the participation of top investor Air France-KLM is far from certain.

The loss-making carrier was thrown a lifeline on Friday when its board members – including Air France-KLM – approved a government-led 500-million-euro bailout. The emergency plan includes the capital increase and loans worth 200 million euros.

Italian media reports over the weekend said Air France-KLM Chief Executive Alexandre de Juniac had told Alitalia’s chairman that his group would not participate in a cash call.

But when contacted by Reuters on Sunday, de Juniac denied having made any statements on the capital increase and called the reports “fanciful”. He declined to make any further comment on his position.

Air France-KLM, which owns a 25 percent stake, said on Friday it would make a decision on whether to take part in the cash call only after Monday’s shareholder meeting.

“The decision by the Air France-KLM board members to support the emergency plan does not in any way presuppose our decision on whether to subscribe to the capital increase,” it said.

All shareholders will have 30 days to decide what portion to subscribe.

On Friday, the Franco-Dutch airline said it would set “very strict” conditions before giving any help. A source close to the situation said then that it objected to a lack of clarity on Alitalia’s valuation and insisted on much tougher restructuring, believing the emergency plan was not enough.

Any of Air France-KLM’s conditions could clash with Alitalia’s long-haul ambitions, analysts said.

Alitalia’s new CEO Gabriele Del Torchio wants the company to focus on the higher-margin long-haul market after its plans to become a strong regional player came unstuck due to tough competition from low cost players and high-speed trains.

De Juniac has said he could see Alitalia boosting its intercontinental routes where Air France-KLM’s own network might be weak, but his group may want to see some serious restructuring of the Italian company first.

STRATEGIC PARTNER

Analysts said Air France-KLM remained the natural strategic partner for Alitalia, but the group’s appetite was limited as it pushes through its own unpopular restructuring at home.

“I am sure they would strategically want to have Alitalia in their camp, but the last thing they want at the moment is to consolidate a rotting company,” said airlines expert James Halstead, managing partner at UK-based Aviation Strategy Ltd.

Le Monde newspaper said on Sunday that Air France-KLM’s conditions included a new strategy, a halt to route expansion and no new aircraft purchases as Alitalia addresses its debts.

If it does not participate in the capital increase, Air France-KLM risks being overtaken by Italy’s state-owned post office as the top shareholder. The postal group was brought in by the government last week to help save Alitalia by offering to put in 75 million euros for any unsubscribed shares in the capital increase.

A cash call without Air France-KLM would also increase the uncertainty over Alitalia’s future as it was supposed to be only a stop-gap solution before talks on a possible combination of the two airlines.

Alitalia, which last turned a profit in 2002, has operating costs of about 10 million euros a day, according to analysts’ estimates. Revenue falls far short of this so the cash injection will not last long and it needs a partner such as Air France-KLM to improve its long-term prospects.

Prime Minister Enrico Letta urged Alitalia to find a foreign partner quickly and change its business strategy radically, Il Sole 24 Ore newspaper said on Saturday.

De Juniac has said in the past he was open to taking over Air France-KLM’s Skyteam alliance partner to bolster its access to the Italian travel market, Europe’s fourth largest. But support from his board, including representatives of the French state and Dutch shareholders was far from guaranteed.

In the absence of other bidders, Alitalia’s options for a partner are limited, especially after Etihad Airways has distanced itself from the struggling carrier for now.

The support of Alitalia’s domestic investors for the capital increase is also in the balance. Its second biggest shareholder, the Riva family, has had its assets seized in a judicial investigation, including its Alitalia’s 11 percent stake.

The airline is currently owned by a disparate group of 21 investors including bank Intesa Sanpaolo and highway operator Atlantia, a consortium pulled together in 2008 by then prime minister Silvio Berlusconi after he rejected a takeover by Air France-KLM.

($1 = 0.7373 euros)

(Additional reporting by Francesca Landini and Silvia Aloisi in Milan and Tim Hepher in Paris; editing by David Stamp)

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