Alitalia Seeks Bankruptcy Protection, Rescuers Ready

August 29, 2008

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Alitalia sought bankruptcy protection on Friday after nearly two years of looking for a buyer, paving the way for its rescue by a group of Italian investors in a coup for Prime Minister Silvio Berlusconi.

The long-awaited move by the national airline after 61 years of flying popes and movie stars during Italy's "Dolce Vita" glory days sets it up for a less glamorous rebirth as a smaller airline focused on domestic and European routes.

Alitalia has not posted a profit since 1999 as it faced competition from low-cost carriers, strikes and inefficiencies. But it controls the lucrative Milan-Rome route, and its healthy units will be sold to a group of 16 Italian investors including Intesa Sanpaolo.

"Alitalia is a company that has accumulated many errors, many losses, many conflicts," said Intesa Sanpaolo chief executive Corrado Passera, who drew up the rescue plan. "It's in difficulty but has resources within that can be revived, used and relaunched."

"The next four weeks will be crucial," Passera said.

The airline's debt and its ground service unit will be liquidated, and the state will likely absorb the losses, sparking an outcry from consumer groups and the opposition who say Italians will end up paying for Alitalia's rescue.

The government holds a 49.9 percent stake in the airline.

Alitalia, which had EUR314 million euros in cash and more than EUR1.17 billion in debt as of July, said in a statement that it had applied for insolvency in a Rome court under a new process for "public service" companies.

The airline had been expected to post a record loss in the first half of the year on Friday, but now it will not announce results.

Settling Alitalia's fate is a feather in the cap for Berlusconi, who called for a patriotic rescue of the carrier after helping scuttle a deal with Air France-KLM in April.

"When we see an Alitalia airline anywhere in the world, each one of us feels close to home," Berlusconi said on Thursday after suspending antitrust laws and overhauling the bankruptcy law to accommodate the rescue.

"It's not a question of out-of-fashion patriotism. A flag carrier is indispensable to get tourists from around the world to come to Italy rather than other countries."

The new process for public service companies, approved by Berlusconi's cabinet on Thursday, calls for a special administrator with the power to sell some of the company's assets to a single buyer of his choice, instead of conducting a lengthy auction.

The government named former finance minister Augusto Fantozzi as commissioner to oversee the bankruptcy process.

The administrator does not have to sell to the top bidder but must find a buyer guaranteeing continuity of service.

Air France-KLM and Lufthansa are still tipped as front-runners to buy a minority stake in the reshaped airline, which needs a foreign alliance to survive longer term.

Ready to buy is the group of 16 Italian businessmen, led by Piaggio CEO Roberto Colaninno under the guise of Compagnia Aerea Italiana (CAI). They plan to invest EUR1 billion into the airline.

The head of Air One, Alitalia's only real competitor on the lucrative Milan to Rome route, is among the investors and his company will be folded into the flag carrier, which will focus on short- and medium-haul routes.

To sidestep competition problems, the government changed the law so that for at least three years the antitrust authority can only make demands on tariffs and not on the sale of slots.

Small investors in Alitalia, whose shares were suspended in June, will be compensated through dormant funds available to the government.

About 7,000 people, or 40 percent of the work force, face losing their jobs, but there will be seven-year welfare benefits and options to move on to other public or private companies.

Alitalia's strike-prone unions, which have reacted angrily to the rescue plan, are expected to begin talks with the government on Monday aimed at winning their backing.