Italian Think-Tank Says Let Alitalia Go

December 27, 2007

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An Italian think tank called on politicians on Wednesday to release their grip on flag carrier Alitalia and sell the airline to foreign bidder Air France-KLM.

Prime Minister Romano Prodi's cabinet will discuss on Friday what to do with the state's 49.9 percent stake in Alitalia, whose board has recommended the Air France bid and rejected one by a smaller Italian airline which is preferred by the biggest unions and many politicians.

Opponents to the foreign bid say the larger airline would swallow up Alitalia and turn it into a regional carrier. Politicians in the wealthy north say Air France's plan to concentrate operations in Rome, downgrading Milan, would be disastrous.

But the free-market Bruno Leoni Institute (IBL) said resistance to a foreign takeover was a symptom of Italy's reluctance to allow the market to decide if and how big companies survive.

"The fear of the political classes and the unions is all about losing decision-making power over Alitalia," said Andrea Giuricin of the IBL. "But it is precisely these two groups of people who are responsible for Alitalia's state of crisis."

Inefficiencies, incessant union disputes and Alitalia's two hubs -- Rome and Milan -- are among the reasons blamed for its losing EUR1 million euros (USD$1.44 million) a day despite dominating the market in one of the world's most popular tourist destinations.

After years of state support -- now outlawed under European Union law -- Prodi vowed to completely privatize Alitalia, despite opposition from parts of his coalition.

He now faces the tough decision of whether to sell to the Franco-Dutch airline or over-rule Alitalia's board and opt for a bid by private airline Air One, backed financially by Banca Intesa Sanpaolo and politically by the main unions, the head of employers' group Confindustria and northern politicians.

Air France-KLM promises to invest EUR6.5 billion in long-term investments into Italy's flag airline, preserve the Alitalia brand and an extensive network of routes in Italy. An Air One bid has the attraction of keeping Alitalia Italian.

A union representing air crews went against the current and came out on Wednesday in favor of the Air France bid. Avia said it would ballot its members of January 3 and expected a resounding yes to the foreign takeover.

"Politicians should stop meddling with business decisions taken by a board which has knowledge and legitimacy," Avia President Antonio Di Vietri told ANSA news agency. "Defying those decisions would lead to bankruptcy within months."

Prodi has declined to be drawn on his preference and issued a statement denying an assertion by the Financial Times that he and his economy minister, Tommaso Padoa-Schioppa, favored the Air France bid while most of his cabinet preferred the home-grown option.

(Reuters)