Air France Demands Alitalia Overhaul Before Combination

Air France-KLM Group Chief Executive Officer Alexandre de Juniac said Alitalia SpA must commit to a deeper overhaul before the French carrier considers deeper ties that would help create a pan-European airline.

“Air France, KLM and Alitalia would make a great European carrier,” de Juniac said in an interview last night on French television broadcaster LCI. “But at this point, it’s not guaranteed, because to do what we’ve asked, there has to be an industrial restructuring of Alitalia that goes a lot further than what we’ve seen so far.”

Air France, which already owns 25 percent of Alitalia and is a partner in the Skyteam alliance, isn’t in a position to keep funding Alitalia without a restructuring plan at the Italian carrier, the CEO said. The French airline has been reluctant to invest as it undertakes its own restructuring and has seen the value of its holding in Alitalia plunge.

Air France is considering whether to contribute to a capital increase at Alitalia, which was agreed by the Italian airline’s board last week. Time is running out for Alitalia, as its sales slump deepened over the last month as concerns over the airline’s future deterred travelers from booking.

Alitalia’s last major overhaul occurred in 2009 after the company declared bankruptcy and got a fresh start by eliminating its debt and merging its assets with those of another Italian carrier, Air One SpA.

“In our view, Air France-KLM (AF) should only take over Alitalia if the airline is allowed to enter bankruptcy,” Donal O’Neill, an analyst at Goodbody Stockbrokers in Dublin, wrote in a note to investors today. “The airline could be stripped to the bone with the brand, the long-haul network and a few short-haul trunk routes kept intact and integrated.”

To contact the reporter on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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