labels: News reports, Air France KLM
Alitalia takes to the skies once more news
13 January 2009

Air France-KLM has picked up a 25 per cent stake in Alitalia, giving Italy's bankrupted national carrier a fresh lease of life. The deal, worth 323 million euros ($443 million), was made official on Monday, and the first flight of the 'new' Alitalia will take off on Tuesday.

The move was hailed as a breakthrough by Compagnia Aerea Italiana (CAI), the consortium of 21 investors that owns Alitalia after it was privatised earlier this year, as well as by experts. ''It reaches objectives beyond our expectations,'' said Roberto Colaninno, chairman of the scooter maker Piaggio, who also chairs CAI.

Industry watchers say an international partner was vital to supplement Alitalia's 13 long-haul routes. The agreement will join France, Italy and the Netherlands, and help bring in passengers from Britain, Scandinavia and Germany. The recent merger with Air One, another Italian carrier, should also help funnel more business to these routes.

The agreement gives Air France-KLM three seats on Alitalia's 19-member
board of directors, and 2 of 9 seats on its executive committee. A four-year lock-up period prevents anyone from selling their shares outside the investor group, and shares offered for sale in the fifth year must first be offered internally. The deal allows Alitalia to seek a stock market listing after the third year.

This means that while Air France-KLM will be the majority shareholder, it will not be able to buy any more of the airline for the next four years. However, it can increase its stake in the event of a rights issue to recapitalize the airline. The lock-up will become invalid should Alitalia be listed on the stock market.

The two companies said that Rome Fiumicino and Milan Malpensa airports would join ''on an equal basis'' the Paris and Amsterdam hubs operated by Air France-KLM. Alitalia will be run independently from Air France-KLM. The alliance would generate 720 million euros in cost savings for Alitalia over three years, the companies added.

While the majority of analysts agree that the deal is good for all the parties concerned, much would depend on Alitalia's ability to gain the cooperation from its unions, while the French-Dutch carrier would have to fly in its much-needed management skills to Alitalia.

The agreement comes as a bit of a blow to Germany's Lufthansa, which had also sought a slice of the pie. However, it had proposed a relationship between Alitalia and its Star Alliance grouping, rather than submitting a bid. British Airways was also in the running, but never made a serious bid.

Alitalia chief executive officer Rocco Sabelli said on Monday that Air France-KLM was the "best solution" compared to the alternatives offered by Lufthansa and British Airways. Lufthansa "showed interest in the Italian market but never in a concrete project for a new Alitalia," while British Airways never wanted to make a real investment, he said. Air France-KLM has always been considered to be Alitalia's natural partner, and the two airlines are already allied in the international SkyTeam group.

Alitalia was put into bankruptcy on August 29 after political and labour opposition thwarted two years of attempts to sell the airline, which was 49.9 per cent state-owned. Around March this year, Air France-KLM had made an offer to buy all of Alitalia for 139 million euros, plus assuming the carrier's debts of some 1.3 billion euros, but the plan was torpedoed by the airline's unions and opposition from centre-right parties, which went on to win the general elections in April.

In August the new government changed Italy's bankruptcy laws to allow Alitalia's flight operations to be spun off and sold, and encouraged the creation of CAI, which was specifically set up to keep the airline "Italian". Alitalia's remaining assets will now be sold or liquidated, including its debts of over two billion euros.

Lufthansa shows brave face: Lufthansa, Europe's No 2 airline and leader of the Star alliance, told a news agency that it wasn't surprised by the Italian decision and that it hadn't had access to the commercial data needed to make a firm bid.

Lufthansa had sought to become CAI's partner after abstaining from earlier bids because of Alitalia's debt. Chief executive officer Wolfgang Mayrhuber had said in November that he was optimistic about being chosen because of Lufthansa's multihub strategy.

Italy's Northern League party, coalition partner with prime minister Silvio Berlusconi, had backed Lufthansa as more likely to boost traffic at Milan. However, Air France-KLM's assurance to the union that the new alliance would not become Rome-centric tilted the balance in its favour.

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Alitalia takes to the skies once more