The financial situation of Alitalia describes the historical financial situation of Alitalia, the Italian airline company, including its losses, financial difficulties, government support, bailouts, mergers and bankruptcies. The company had reported only one year of profit (1998) since its foundation in 1946 and had been supported by the Italian government for most of its existence. The losses have been in part due to problems linked to government and political interference.
History
Foundation – 2004
Alitalia had lost money for years owing to problems linked to government and political interference. It had reported only one year of profit (1998) since its foundation in 1946. Alitalia reported net losses of more than €3.7 billion between 1999 and 2008. Previous state aid to Alitalia included some €1.5 billion in 1998 from the government of premier Romano Prodi. In 2002 Alitalia received a capital increase of €1.432 billion under the government of Silvio Berlusconi. In 2004 the Berlusconi government gave a €400mn 'bridge' loan to Alitalia. In 2005 the capital of Alitalia was increased by €1.6 billion, including an over €500mn bond float issued with the promise of a return to profit in 2006. (Unfortunately the year ended with a loss of €626 million). The Italian government and some other organizations had invested €4.9 billion since 1998.
2004 – Financial crisis In September 2004 the airline found itself in financial difficulties, with management saying it did not have enough cash to pay worker salaries past the end of that month. It announced plans to lay off 5000 employees and to split the company into two divisions, an airline and a ground services division. It also said it was reconsidering its alliance with Air France. Talks went on with unions for pay cuts and layoffs, in an attempt to keep the company out of bankruptcy and possibly liquidation. On 24 September 2004, the company announced that it had reached an agreement with unions allowing access to a bridging loan from the Italian government.
Alitalia's troubles had now become so severe that Consob, Italy's stock market regulator, required it henceforth to report monthly on its debt and cash positions.
2006 – European Union stops support The government could in 2006 no longer offer support to the failing airline since it had been forbidden by the European Union to inject new capital. Therefore, as all other attempts to save the company had failed, the Italian government announced its willingness to lead Alitalia towards privatization by lowering its part of ownership in it. A public notification was given in January 2007, seeking a buyer who would acquire at least 30.1% of Alitalia, and also guarantee the airline's 18,000 jobs, domestic routes, and the Italian identity of the Alitalia brand, according to the tender document published on the Treasury Web site. Italy invited bids to be submitted by January 29, 2007. (Under Italian law, a buyer of more than 30% of a company must make a public offer to buy out the other shareholders.) In July 2007 the last of the bidders for Alitalia backed off, making the procedure fail.
In September 2007, Maurizio Prato, at that time chairman, told senators in Rome "Alitalia is in a comatose state, it is in the intensive care unit". Further he said: "Personally, I am surprised by the general refusal to accept reality and by the fact that a company in this state does not have the possibility, even though it is listed on the stock market, to make autonomous decisions even if this is needed for its survival".
Another attempt was made to sell the 49.9% stake of the Italian government through a different procedure, involving the selection of a single major partner with whom to contract.
2007 – Purchase by Air France-KLM and investment group On December 6, 2007, three parties (Air France-KLM; an investment group led by businessman and lawyer Antonio Baldassare; and a group composed by the Italian domestic carrier Air One and several banks) presented proposals to purchase Alitalia. The Board of Directors of Alitalia announced the Air France-KLM Group as the winner. In March 2008 the Air France-KLM Group offered a share swap of €0.10 per share, a total of €138 million. The Air France-KLM Group offered to pay €608 million for the convertible bonds issued by Alitalia. The company would also invest €1 billion in Alitalia by selling new shares of Alitalia. Air France-KLM Group intended to maintain the Italian identity of Alitalia and an Italian would have a seat on Air France-KLM's board. It would restructure Alitalia's flight network, basing the bulk of its operations at Rome Leonardo da Vinci Fiumicino Airport and cutting international flights from Alitalia's second hub, Milan Malpensa Airport. Air France-KLM would end Alitalia's freight service by 2010.
The terms of the Air France-KLM Group of the March 28 draft agreement were (with a deadline of 31 March 2008): that the possible consequences of a lawsuit by the Milan Malpensa Airport owners, Sea, will be dealt with by the Italian government. that the current and next government support this proposal. that the unions agree to the dismissal of 1,620 employees of Alitalia Fly: 567 pilots, 594 flight assistants, 121 foreign employees and 398 ground employees. that Air France-KLM will employ only 3,200 of the 7,600 employees of Alitalia's maintenance subsidiary, Alitalia Servizi, if they can dismiss 500 of these employees. that Alitalia's bulk flight network will be based at Rome Leonardo da Vinci Fiumicino Airport and that international flights from Milan Malpensa Airport will be stopped. that the Italian government agree to a capital injection of €300 million in Alitalia to prevent the company from going broke; to be repaid from the raised capital after the takeover has been finalized. that the Italian government invest in the Rome Leonardo da Vinci Fiumicino Airport. that the Italian government guarantee the landing rights of Alitalia. that the relevant competition authorities authorize the proposal.
The fate of the rest (of a total of about 7,600) of the employees of Alitalia's maintenance subsidiary, Alitalia Servizi, was uncertain.
The Board of Directors of Alitalia and the Italian government agreed to these terms; the unions did not. Raffaele Bonanni, the leader of one of Alitalia's main unions, CISL, denounced the agreement: "The government is delivering us naked to negotiate with Air France to the detriment of the workers, infrastructure, and the general interests of the country,". The pilots' union, ANPAC, which had agreed to the takeover in principle, called the French-Dutch offer "unacceptable". ANPAC especially disagreed with the plan to end the freight service by 2010. The talks with the unions over the takeover by Air France-KLM collapsed when the French-Dutch carrier refused to accept union demands, hours before a deadline to win their support was to expire. As a consequence Alitalia's chairman, Maurizio Prato, resigned on April 2, 2008. BBC news Air France-KLM formally announced on Monday 21 April 2008 that the terms set for the take-over of Alitalia were no longer valid and that the offer was withdrawn.
There were plans to merge the profitable parts of Alitalia into Air One. The newly formed airline would have a large fleet of Boeing and Airbus craft, and would offer both European and long haul flights. It was still unsure if Alitalia will remain in the SkyTeam alliance. There were also plans to reduce pilots and crew members and to increase their work hours and salary.
According to Edoardo Staunovo Polacco, a bankruptcy law lecturer at Bocconi University, "Alitalia is no longer able to stand on its own two feet... Either it must be saved by another party or it is inevitable it will go into special administration. It doesn't have any more money and cannot get any from the state". Its shares were suspended following the collapse of the Air France-KLM deal, and the board was to decide on 8 April 2008 whether the company should go into special administration.
The Board noted that on March 31, Alitalia's cash-to-hand and short-term financial credits (according to management figures) amounted to about €170 million, including the sum of €79 million arising from the sale of Air France KLM shares, but not including the fiscal credit of €69 million received on April 2. The Board reiterated Alitalia's need for substantial financial support, as forecast in this year's budget and in the contract set up with Air France-KLM, and that only by means of such support would it be possible to regain the required confidence to pursue the Company's business plan and hence to ensure continued operations., Board of Airline Representatives In the Netherlands Press Release Alitalia 8 April 2008
2008 – Emergency loan The Italian government decided on 22 April 2008 to give Alitalia an emergency loan of €300m ($475m) in an attempt to stave off the airline's collapse. The outgoing administration of Romano Prodi agreed the lifeline with new Prime Minister Silvio Berlusconi, who was elected in office in April 2008. BBC News Alitalia must prevent its capital from sinking below the threshold set by European rules. If Alitalia cannot meet this obligation, including safety guarantees, Italian aviation authorities could revoke Alitalia's license. The chairman of Italy's civil aviation agency ENAC, Vito Riggio, said "they have to see that there's continuity, among other things, for safety," and "They have to guarantee they have (financial) coverage for at least a year." Riggio told a talk show on state radio that ENAC could either revoke Alitalia's license or give it a provisional one if the airline cannot save itself financially. He did not give a time frame for any decision.
The European Union doubted the legality of this loan, as they had decided that Alitalia could not receive any form of state support until 2011. The EU announced on June 11, 2008, that they would investigate the loan. An EU executive said, "As Alitalia has already benefited from rescue and restructuring aid, Italy cannot, in principle, grant it any more aid." The EU regulators said the loan of public money might give Alitalia an unfair advantage over competitors. The EU checked whether private investors would have loaned Alitalia this amount. Other companies will have a chance to send the EU their comments and they will examine the conditions of the loan. International Herald Tribune 11/06/2008
The government of Silvio Berlusconi announced plans to sell Alitalia in May 2008, the third attempt since January 2007. The government asked Intesa Sanpaolo to come up with a plan to improve the airline's finances. This plan was presented in August 2008. The government issued also a decree in May 2008 that would exempt Alitalia from disclosing information on this sale to the market. Reuters As a consequence the trade in Alitalia stock at the Borsa Italiana in Milan was halted indefinitely by the stock exchange authorities as of 4 June 2008. Intesa Sanpaolo devised the plan in co-operation with the Italian cabinet.