Alitalia bailout, a puzzle for head of the Italian government.

Redacción - Aviación al Día

4 years ago

Mario Draghi, head of the Italian government since February, faces his first major economic challenge: how to save Alitalia from bankruptcy when negotiations with Brussels on this issue are at a standstill.

In March, at the start of negotiations on state aid, the two sides boasted of a “constructive” discussion, but since then the tone has risen dramatically.

“We are engaged in a real battle” with the Commission’s vice-president in charge of competition, Margrethe Vestager, “to make her understand the importance of having an airline of our own,” said the undersecretary of the Treasury, Claudio Durigon, AFP reported.

On the street, “I am assaulted by Alitalia employees unhappy that Alitalia is not being given what Lufthansa and Air France are being given,” complained Economic Development Minister Giancarlo Giorgetti.

Hit hard by the health crisis, Air France-KLM and Lufthansa received public aid of 10 billion euros ($11.7 billion) and 9 billion euros ($10.5 billion) respectively.

“Batch sale”

Very angry, Alitalia unions demonstrated Tuesday in Rome to protest against the “batch sale” of the company and delays in the payment of their salaries.

In a letter sent to Rome and revealed by the Italian press, Vestager expresses her “concern about the lack of substantial progress” in the negotiations with Rome and demands that the new company allegedly born from the ashes of Alitalia should make a clear break with its predecessor.

The previous government headed by Giuseppe Conte created in 2020 a public company to save Alitalia, christened Ita, into which it intended to inject €3 billion ($3.5 billion).

In 2017 and 2019, Alitalia received state loans totaling €1.3 billion ($1.5 billion). Brussels, examines whether this aid complies with competition rules.

Under pressure from the European Commission, Alitalia’s recovery project aspirations have been revised downwards. It now involves a fleet reduced by half, to 45 aircraft, and staff would be downsized to 4,500 aviation employees.

Maintenance and ground services would be sold separately.

In total, the company employs more than 11,000 people.

Mario Draghi seems to have given a clear but elusive order to his ministers: “a plan must be negotiated for Ita that allows it” to fly on its own wings “without burdening the community.”

“Italian taxpayers have already had to spend tens of billions of euros over the past 30 years to keep a very poorly managed company afloat,” Massimo Colombo, professor of innovation economics at Milan Polytechnic School, told AFP.

“The airline industry has undergone a major movement of concentration in recent years, Alitalia will not be able to survive alone, it needs a private partner,” he added.

Large losses

For international flights to and from Italy, its market share was 7.8% in 2019, far behind Ryanair’s 23%.

Alitalia accumulated losses of €11.4 billion ($13.4 billion) between 2000 and 2020. Its turnover fell 65% again to €1.1 billion ($1.3 billion) in 2020, due to the pandemic.

Should Alitalia be saved at all costs?

“I don’t think the Italian state should put its hand in its pocket again to rescue Alitalia,” Andrea Giuricin, a transport economist at Milan’s Bicocca University, told AFP, a supporter of selling the airline’s assets on the market.

“A new Alitalia under minimums will hardly be able to withstand competition from majors like Lufthansa and Air France and low-cost carriers like Ryanair or Easyjet,” he added.

Draghi, who knows the workings of the European Union inside out, will he find a solution?

According to Giuricin, “he will not be confrontational with Brussels and will look for ways to minimize the use of public money”.