MIAMI — Italy’s ill-fated flag carrier, Alitalia, lives on. The Italian Minister of Infrastructure, Danilo Toninelli, announced that Alitalia’s future is to “remain Italian,” and that the government will control 51% of the airline’s shares while an international partner comes through with an offer.
“This government is carrying out the necessary conversations to ensure a future for this company and to protect the needs of its workers,” said Toninelli.
The union-controlled airline undoubtedly rejoiced following the Minister of Infrastructure’s remarks, though the future of the airline remains uncertain.
In less than a decade, Alitalia’s bailouts have cost a tad over €9.5 billion.
Since 2008, the airline has gone through two bankruptcy proceedings, one privatization, and capital injections that have evaporated as soon as they hit the airline’s checking accounts.
Today, Alitalia continues to bleed over €400 million per year, without apparent signs of seeing losses turn into profits.
Keeping Alitalia Italian
Toninelli believes that the solution to the decade-long crisis is to keep Alitalia on the tracks of the “Italianness,” a strategy that hasn’t worked for the airline during this decade-long mess.
“It is a fundamental goal for Alitalia to regain its status as Italy’s flag carrier,” he says. “But we need a partner that will make Alitalia fly.”
As of today, the only bidders to take over Alitalia are Lufthansa, easyJet, and WizzAir.
Out of these, the only carrier with a strong-enough portfolio and the experience to turn around a failing business is Lufthansa.
Back in October, Lufthansa’s CEO, Carsten Spohr, said the German carrier has an interest “in a newly positioned Alitalia,” highlighting the fact that the company is not economically viable in its current state.
Spohr added that Lufthansa “would be interested in taking over Alitalia only if it were possible to make a fresh start with it.”
“If there were a chance of creating a new Alitalia, as Europe’s number one (carrier) Lufthansa would certainly be interested in the talks,” he said.
Even though Lufthansa’s offer is still on the table, it was initially deemed too rough by the Italian airline, given that it proposed a cut of at least 50% of Alitalia’s workforce—unacceptable for both the Italian government and the carrier.
What’s The Real Value?
Bocconi University’s Economics professor, Andrea Giuricin, tells the Corriere della Sera that Alitalia’s current value is “difficult to determine.”
“Its value is difficult to calculate because its planes are almost entirely leased and the slots they own cannot be sold,” he explains.
“We can hypothesize a residual value of the company of around €150-200 million,” he notes.
Should this be the real value of Alitalia, then Lufthansa’s initial offer for €500 million would be a no-brainer for the airline’s shareholders.
However, the Economics professor explains that Alitalia’s biggest issue is the fact that its revenues are far below its current expenses. “The problem is that Alitalia’s current costs are much higher than those of low-cost carriers in the region.”
Airline analysts argue that for Alitalia to be successful, it needs to focus its strategy on long-haul services fed by fewer regional and domestic flights.
Alitalia currently runs a myriad of expensive, point-to-point regional flights within Italy that cannot compete against the presence of LCCs like Ryanair and easyJet.
However, the airline has failed to adapt to the changing market and continues to operate unprofitably.
My analysis @Reuters @reuters_italia about #Alitalia together with @DaniloToninelli and @matteosalvinimi “Even if the state takes only a minority stake in Alitalia, no investor will dare getting close given what happened in the past." pic.twitter.com/0pST9sO8Bh
— Andrea Giuricin (@AndreaGiuricin) July 20, 2018
Professor Giuricin believes that the airline’s real issue is that “politics have always considered Alitalia a special company,” treating it as such, and not as an airline that needs to compete against the growing LCC presence in the European landscape.
From Private To Public — Not Again!
Alitalia’s short-lived privatized venture with Etihad didn’t work. That’s a fact. But returning to a government-owned scheme will, once again, curtail the airline’s ability to freely compete against regional and worldwide carriers.
“With ministers Di Maio and Toninelli, Alitalia’s destiny is finally tied to the worker’s and country’s interests,” said Emanuele Scagliusi, the Five Star Movement’s Transport Chamber delegate.
Tying the airline’s fate to its country’s and worker’s interests will allow the unions to decide the airline’s course of action.
“We’re not looking for another rescue or survival. We’re looking for a re-launch within a strategic transport plan that makes Alitalia a competitive national carrier,” he concluded.
The New Uniform Fiasco
Alitalia’s new cabin crew uniforms are now the cause of an investigation by the European Commission (EC).
The Italian authorities will have to explain to the EC the reasons behind launching new uniforms for the airline’s cabin crew, only two years after unveiling the Etihad-styled designs catered by Ettore Bilotta that were part of a major corporate image shift.
Alitalia has received several capital injections adding up to €900 million to keep its operations afloat.
The EC is now questioning whether part of these funds was used to design and manufacture the new uniforms, which have been deemed as unnecessary by members of the airline industry.
The airline must return the loan by mid-December 2018.
During the IATA AGM in Sydney in June, IAG’s CEO, Willie Walsh, said that it was madness for Alitalia to be spending on new uniforms while on bankruptcy.
“These new uniforms will cost them €7 million. It’s madness,” Walsh said.
And Peter Harbison, Executive Chairman at CAPA, quickly added that the airline might be “dressing up for their funeral.”
Now that the venture is being questioned by the EC, the airline will have to explain the rationale behind this irrational project.
No More Transatlantic Joint Venture
In other news, Alitalia is no longer part of the Transatlantic joint venture that participated with Delta Air Lines, Air France-KLM, and Virgin Atlantic since 2010.
Alitalia was not included in the amended application that was filed by the other carriers.
According to the group, “although the parties hope to implement metal-neutral cooperation with Alitalia in the future, Alitalia is currently undergoing restructuring through the Italian bankruptcy process, and its future ownership structure is uncertain.”
A popularity contest?
Now that Italy’s new government is settled in Rome, analysts believe that these nationalization schemes are purely for marketing and popularity purposes.
But with Air Italy growing steady, settling its hub in Milan-Malpensa (MXP), the Italian government will have to work fast to keep Alitalia viable.
During the first three months of 2018, Alitalia’s 4,000 flights per week lost over €117 million.
Even though these are critic figures, it is just half of what the airline lost in 2017, says Maurizio Ricci from Tiscali.
To keep Alitalia running, over €5.5 billion are needed within the next couple of months, he says. “€3 billion for new planes, €1 billion to renew the AOC, and €1.5 million to pay off the €900 million debt that the airline has with the government.”
As the airline continues to fly “under administration,” the Italian government should be accepting a bid from an international partner soon.
But today, the government’s secretary for Economic Development, Andrea Cioffi, said that no decisions will be made but until after August.
Therefore, the hunt for that 49% partner that “will make Alitalia fly” is temporarily halted.