Air France Says It Won’t Participate in Alitalia Stock Sale

Air France (AF) KLM-Group won’t participate in Alitalia SpA’s planned capital increase, saying the proposed restructuring of the unprofitable Italian carrier isn’t sufficient to win its support.

Air France-KLM, the largest investor in Alitalia with a 25 percent stake, will instead convert bonds to boost the Rome-based company’s equity, it said in a statement today after a meeting of Alitalia’s senior management late yesterday.

“Even if the industrial component of the new plan presented yesterday by Alitalia is a step in the right direction and is receiving Air France-KLM’s full support, the necessary financial restructuring measures are still not yet met,” Air France said in the statement.

Alitalia has been teetering on the brink of collapse as its losses swelled and reserves dwindled amid increased competition and a shrinking customer base. Italy’s government has brokered a rescue package that includes a capital increase partly supported by the state-owned postal service. Air France bought its stake in Alitalia in 2009 and has seen the value of that holding collapse as the Italian carrier’s crisis deepened.

Sidestepping the capital increase will dilute Air France’s stake to about 11 percent, according to Italy’s government. It would also deny Air France veto powers it now has against decisions on major partnerships with other airlines, the minister said at the time.

Alitalia sold 1.43 billion euros of convertible bonds and new shares in 2002 as part of a previous turnaround effort, and the airline defaulted in 2008. Air France participated in a loan this year to ease Alitalia’s financial constraints. The loan included the possibility of conversion into equity, which Air France today said it will exercise after the capital increase.

Air France paid 323 million euros for its stake in Alitalia, which had gone bankrupt and was given a fresh start when it was stripped of its debt and its assets were merged with those of Air One SpA. The French carrier said today it would seek to remain a “loyal and serious” partner.

To contact the reporter on this story: Andrea Rothman in Toulouse at

To contact the editor responsible for this story: Benedikt Kammel at

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