Alitalia to Start Bankruptcy Process as Workers Spurn BailoutBy and
Job and pay reductions were tied to $2.2 billion refinancing
Carrier’s chairman begins procedure to name a administrator
Alitalia SpA said it exhausted all options after workers voted against job cuts aimed at salvaging the cash-strapped Italian airline, pushing it toward administration for the second time in a decade.
A 2 billion-euro ($2.2 billion) recapitalization tied to the savings plan is effectively dead and Alitalia will start appropriate “legal procedures” as funds run out, the Rome-based airline said. Chairman Luca Cordero Di Montezemolo “formally” communicated to the Italy aviation authority that the carrier decided to start the process of naming a administrator, the authority said on its website late Tuesday.
The decision to appoint an administrator is the first step for being placed in a legal reorganization process, making it almost impossible a last-minute rescue of the carrier as it exists today. Italy has said it won’t nationalize Alitalia whatever the circumstances. Abu Dhabi-based Etihad, the carrier’s main backer, said the employees’ rejection means “all parties lose,” and that it supports the board’s move to hold a shareholders’ meeting Thursday “to start preparing the procedures provided by law.”
“The most likely scenario is that we will go towards a short period of special administration that may be concluded within six months with a partial or total sale of Alitalia’s assets or with liquidation,” Economic Development Minister Carlo Calenda told TG3 in a television interview late Tuesday.
The company was last put into bankruptcy in 2008 after political and labor opposition thwarted sale plans, and has stumbled on since, with ties to Air France-KLM Group and Etihad Airways PJSC failing to end losses.
While a complete collapse would have an inevitable impact, the carrier is less central to Italy’s economy than before, after shrinking its long-haul network and losing market share to low-cost rivals on European routes. The Italian aviation authority, or ENAC, said conditions are in place to allow Alitalia to continue its operations and flights regurarly
Alitalia employees voted against a rescue plan that included pay cuts and the elimination of hundreds of jobs, according to results of a ballot published Monday. The government said Tuesday that it will seek to “minimize the cost to citizens and travelers” as it awaits the next move from the company’s shareholders.
Those investors include Etihad, which bought a 49 percent stake in 2014 and has struggled to effect a turnaround. Alitalia had a net loss of 199 million euros in 2015, the last year for which it has published figures. The package rejected by workers included 1,600 job losses designed to help the carrier break even, down from 2,000 proposed under an earlier proposal. The carrier has 12,500 employees.
Alitalia’s board met following the outcome of the poll calling a shareholders meeting Apr. 27 to formalize its decisions. About 70 percent of those voting rejected the deal brokered by management and labor leaders, according to the USB union.
The recapitalization, for which the cost cuts were a precondition, included about 900 million euros of new funding, according to Alitalia’s latest business plan, leaving the company facing a liquidity crunch. UniCredit SpA, Italy’s largest bank, said last week it has lost almost 500 million euros on the airline.
Once Alitalia declares itself insolvent, the government would appoint a special administrator to take formal charge and develop a rescue plan within 180 days, which could be extended for a further 90 days. The plan might entail asset sales, reduced operations and consequently unlimited job cuts aimed at making the airline viable within two years. Alternatively, the person may decide that a turnaround isn’t possible and order the carrier to be liquidated.
Alitalia’s years of underperformance have diminished its standing within the industry, with the carrier’s share of the Italian market slumping to 18 percent as of 2015 from 23 percent in 2007, according to an analysis by Ugo Arrigo and Andra Giuricin of Milan Bicocca University. Ryanair Holdings Plc Europe’s biggest discount carrier, now ranks No. 1 with a 23 percent share, up from 12 percent a decade earlier, with EasyJet Plc at 12 percent.
Alitalia’s passenger tally dropped to 22 million by 2015 from 30 million a decade earlier, the study also shows. Over the period, its biggest network-based rivals all grew, partly through acquisitions, with Deutsche Lufthansa AG adding 55 million passengers, British Airways owner IAG SA 25 million and Air France-KLM 20 million.
Alitalia has reduced its network beyond Europe, North Africa and the Middle East to only about 15 destinations. On what has traditionally been the busiest route, Milan to New York, it also now faces competition from Emirates, the world’s biggest long-haul airline, which began linking the cities in 2013 as an extension of a service from Dubai.
Etihad could seek to sell its stake to Lufthansa, La Stampa reported Tuesday, without citing anyone. The German airline last year agreed to take 38 aircraft from Air Berlin Plc, also part-owned by the Persian Gulf airline, which has racked up record losses in the past two years. Etihad and Lufthansa announced a cooperation pact in February after years of rivalry.
Alitalia as it exists today was created in 2008 after the original airline entered bankruptcy and its healthier assets were purchased by a group of investors and combined with another ailing Italian operator, Air One.
— With assistance by Kevin Costelloe
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