Skift Take

Investors interested in the country's image and financial health stepped up at the last minute, but the cash is a bandaid masking Alitalia's need and unlikely attainment of a long-term strategic partner.

Italy’s struggling airline Alitalia has finally succeeded in netting the 300 million euros ($412 million) it needs to keep flying over Christmas after a long drawn-out capital raising, a source with knowledge of the operation said on Tuesday.

The cash call is part of a government-engineered rescue package seen as a stop-gap measure to keep Alitalia in the air until it can find a new partner willing to invest in revamping its operations and making it more profitable.

The airline had to extend the deadline for fresh investment as shareholders aired doubts over its proposed new business plan and worried about the scarcity of potential new partners. The source said that Italy’s state-owned postal service, which had been lined up to commit up to 75 million euros in any unsubscribed shares, had to participate in the cash call in the end, although to what extent was not yet known.

“Including subscriptions by existing shareholders, new investors and the investment by the postal service, the 300 million euro target has been reached,” the source said.

An Alitalia spokeswoman said the company would comment on the outcome of the capital increase in due course. The deadline to take up any unsubscribed rights in the cash call expires on Tuesday.

The successful rights issue, which includes pledges from new investors such as Italian businessman Antonio Percassi, will likely allow Alitalia to keep flying throughout the key Christmas holiday season.

But with daily losses of around 700,000 euros and net debt of more than 800 million euros, analysts said that within six months Alitalia could again risk having to ground its fleet when the cash runs out unless a strong partner can be found.

Top shareholder Air France-KLM, which has a 25 percent stake and has so far been seen as the most suitable airline to come to Alitalia’s recue, was one of several investors to snub the rights offer and let their stakes be diluted. The Franco-Dutch group said Alitalia’s pledge to make severe cost cuts was not enough to save it without its creditors having to write off some of its huge debts.

Over the years various major airlines including Air France-KLM, Lufthansa and British Airways have flirted with partnering the carrier that offers access to Europe’s fourth-largest travel market and flies 25 million passengers a year.

In the end they decided Alitalia was too much of a gamble.

Today’s Alitalia is much leaner than the group that was rescued and privatized in 2008. It has a younger fleet, its cost base is better than that of Air France and long gone are the perks its staff enjoyed such as being picked up by taxi from home.

But a misguided focus on the domestic and regional markets have left the airline vulnerable to competition from low-cost carriers and from high-speed trains on the busy Milan-Rome route.

Reporting by Agnieszka Flak. Editing by Lisa Jucca and Sophie Walker.

Copyright (2013) Thomson Reuters. Click for restrictions.

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Tags: alitalia

Photo credit: An Alitalia plane approaches to land at Fiumicino international airport in Rome October 14, 2013. Max Rossi / Reuters

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