Poor Alitalia. No seriously, I really do feel bad for them. I know they’re completely incompetent and losing millions of dollars a day, but I still feel a little sympathy. See, even if they could run a functioning airline, they wouldn’t be allowed to do it thanks to the meddling of the Italian government.

In last week’s episode, we were down to two bidders, but the final decision had been delayed. Then yesterday, we had big news. Um, the final decision has been delayed again. Now it’ll supposedly happen on Dec 21, but I wouldn’t put bets on it. Why?

The Italian government can’t keep their grubby hands to themselves.

We have two offers here. Air One, the Italian airline, will pay 1 euro cent per share (basically nothing) and then spend most of its money on fixing the airline and merging into it. Air France will pay 35 euro cents per share, but they won’t pour as much into the airline. They also say they’ll make Milan a regional hub and focus their efforts on Rome flying. Air One hasn’t made such claims.

The reason everything has been delayed is because the government is dragging its feet. In fact, there’s a top level meeting between the Italian and French heads of state to discuss things on Thursday, and you know this will come up in their talks. But why should it? It’s a business that should be allowed to run like a business. You know that’s not the case when you hear what some of these guys are saying.

Take yesterday’s Reuters article, for instance. On Monday, the Deputy Prime Minister Francesco Rutelli said, “Alitalia must propose the best partner, but the government also has a responsibility … It is not about necessarily choosing an Italian airline, it is not a nationalistic issue. But the interest of the country is at stake. Where will our children, our firms leave from to go to China or India? Will they have to fly from Paris, or even Frankfurt, or will they be able to leave from Milan or Rome?”

Somebody get this guy an economics text book. If there’s demand for flights between Rome and China or India, you know there will be nonstop flights there regardless of who owns the airline. If there isn’t demand? Well then there shouldn’t be a flight there, and if you force one, it will end up being an unprofitable mess. You’ll be right back where you started.

In this article talking about the delay, Rutelli was at it again. “I do not say an absolute no to a partnership with Air France or other foreign partners, but I say that if Air France wants to sit at the table, it has to act in Italy’s interests, rather than its commercial interests.”

Arrrrggggghhhhhhhh!!!!!!!!!

Look, genius, of course Air France has to act in its commercial interests. Why else would they be doing this? Do you think a single Air France shareholder is going to say, “Gee, I don’t care if we make money as long as we’re doing it for Italy.” If you do a good job of making your country a center for commerce and tourism, people will go to/from there. And if there’s demand, airlines will gladly fill it with nonstop flights. But if you have no demand, why on Earth would any airline fly it? So, spend your time furthering your country’s ability to be a desirable place for business and tourism, and then there will be enough demand for flights.

When it comes to Alitalia, just take the bid that makes the most sense from a financial perspective and get out of that mess as soon as you can.

I’m not sure why, but I’ve had a lot of trouble coming up with post topics this week. Maybe it’s a slow week, or maybe work has just been too busy. Either way, today I’m just going to fall back on my old standby . . . Alitalia.

Today, Alitalia received word that of the three expected bidders, only two will make the bid: Air France/KLM and Air One.

Now they have to choose from those two bidders, and it’s not the greatest choice. On the one hand, they have Air One. It’s a small Italian airline that may not be up to the task of integrating the larger, very debt-heavy airline. But, the government could make the most money from them, and yes, the airline would remain Italian.

On the other side, we have Air France/KLM. This is not a stupid airline, so you know they’ve low-balled the bid. I’m reminded of the guys at Texas Pacific Group saying how they’re always interested, it’s just a matter of price. That means of course that the worst of companies may find that TPG is only interested if the price is $1. I’m guessing Air France/KLM is thinking of something along those lines, though not nearly as extreme. The government makes less money, but they may have a better chance of getting an airline that works eventually.

That leaves Lufthansa as the odd man out. They just decided it was a bad idea. Duh. I’m sure they’ll sleep easier tonight.

Now the Alitalia Board will meet to decide which offer they like best. When they choose in the next week or so, they’ll enter into exclusive negotiations with the hope that they’ll get this done by the end of the year.

No.

Sorry, I just couldn’t resist. It’s once again been a little while since we checked in with our favorite incompetent airline, Alitalia. I hadn’t planned on doing a post on Alitalia today, but I was reading a post in Leif Pettersen’s excellent travel blog Killing Batteries that started out like this:

F*cking Italy!!!
OK, OK… Let’s just calm down and try to discuss this like rational, levelheaded F*CKING ITALY!!!!!

Naturally, that made me think it was time for another post on that airline I love to hate.
So, what IS new with these guys?

Not much. The airline continues to bleed money while others are generating loads of cash. They just continue to be the laughing stock of the European industry. (And let’s remember, they have an airline in Europe called Wizz Air so Alitalia has to be bad to wrest the laughing stock title away.) The government is still trying to sell the airline. After the last privatization attempt failed, they went back to the drawing board. I’m pretty sure what they wrote on the board was, “Must privatize airline” and then decided to try it again. Now, they’ve asked for non-binding declaration of interest from potential suitors. It was supposed to be due on Nov 30, but surprise! We found out yesterday that it slipped until Dec 5. But don’t worry. Italy’s transport minister said it won’t slip into 2008. Uh huh.

So which masochists are involved this time around? Italy’s Air One is still in the running. They’ve been the only one to show consistent interest in trying to save this mess. But now, the other two showing interest according to “government officials” are Lufthansa and Air France.

Air France has been rumored for a long time but they’ve really never shown a formal interest. Italian workers would certainly feel at home with the strike-loving French, but they might be frightened away by an airline that actually makes money.

Lufthansa, on the other hand, hasn’t been mentioned very much. This would surely see Alitalia defect into the Star Alliance. Hmm, something about German (Lufthansa), Italian (Alitalia), and Japanese (ANA) interests uniting in an alliance makes me a bit uncomfortable . . . .

Anyway, they keep saying this will be done by Christmas. Who wants to take bets?

I have to pick my car up from the shop tomorrow morning, so I thought I’d put my post up tonight instead. It’s amazing, but I actually do get email if posts don’t go up at the usual time. So, here you go . . . .

You always hear misguided governments argue that they need to prop up failing airlines. I’m not quite sure why that is, but combined with other government intervention (including the proposed passenger bill of rights which I don’t support) this probably helps explain why this industry will never be healthy for long periods of time. Something that happened over the last couple of weeks will hopefully help governments understand why coddling isn’t necessary. (I can always dream, right?)

Fortunately for me, it involves the airline I love to hate . . . Alitalia. I wrote a couple weeks ago about how Alitalia’s latest turnaround plan would involve significantly slashing flights at its Milan hub and moving them to Rome instead. Well, you know the government is freaking out about losing all that service in such a major city. But guess what? Where there’s demand, other airlines will come in and fill in the hole.

This time, it’s Ryanair to the rescue. Soon after Alitalia announced its retreat from Milan/Malpensa, Ryanair said it’ll come in with 12 planes based at the airport operating flights to 50 international and 10 domestic destinations within a couple years.

See, if there’s enough demand for service, when one airline goes, another will follow in its place. You argue that Ryanair doesn’t have the same level of service as Alitalia? True. But if enough people want full service, you can bet other airlines will come in and fill the need.

This has happened time and time again. Remember when Southwest set up shop at Chicago/Midway the day after Midway Airlines went under? And how exactly did Atlanta end up being the biggest airport in the world after losing Eastern Airlines almost 20 years ago? Delta and AirTran picked up the slack.

If airlines aren’t healthy enough to survive, governments should let them go. Don’t try to prop them up. Those airplanes will still exist and someone will pick them up and start flying them if there truly is demand. And if there isn’t demand? Well that would probably explain why the airline wasn’t doing well in the first place.

Woohoo! It’s time for an Alitalia update. You know how much I love these guys for their incredible ability to do just about everything wrong, and of course, nothing has changed.

The latest news is about their “survival/transition” plan according to ATW Daily News. I was really hoping that the end was near for these guys, but you knew that wouldn’t actually happen. Now they have a super duper plan to fix the airline. Shall we take bets on how long it is before this one fails? Actually it’s probably safe to say it’s failed before it even started.

The new plan revolves around the airline’s two hubs in Rome and Milan. They’ve now decided that two hubs don’t work. So they’re slashing flights out of Milan in half and bumping up Rome flights. They’re also consolidating cargo operations at Milan. Other than that, it’s not entirely clear what they’re doing. It seems that they’ve had their managers enroll in Glenn Tilton’s “How to Speak in Circles and Say Absolutely Nothing” class. Here are some gems:

• The airline is “no longer able to sustain the negative trend of accumulated and perspective losses.”
• The survival plan is meant to achieve “conditions of sustainability and continuity for company activities in the short/medium term.”
• It will suspend flights with “strongly negative economic results and with no prospects for recovery in the short term.”

Wow, that’s good stuff. But if they’re going to suspend flights that have a negative economic result, they aren’t going to have any flights left.

Please note that at not one point in that article or this one does the the airline mention job cuts. They talk about cutting routes and cutting airplanes but not jobs. There’s no question they need cuts, and maybe they’re planning them, but they’re probably too scared to say it. Why? We all know what happens when they threaten cuts. Strike!

And that’s exactly what the pilots are up to now simply in anticipation of what’s to come. They’re staging a “work-to-rule” protest which means they’re being overly cautious above and beyond the norm. Basically, they’re doing everything strictly by the book and they’re not in any hurry to do it. This is similar to what happened to United back in the Summer of Hell in 2000. Yesterday, 18 flights were canceled after 83 were canceled the Thursday/Friday before.

Many say that the government is just trying to dress up Alitalia to make it look pretty for a suitor. I just can’t believe that any suitor would be that stupid.

Alitalia just loves being in the news, but not in a good way. I just don’t get it. Someone please put this old dog out of its misery.

You may remember that Aeroflot and TPG both pulled out of the running to buy the airline, but TPG’s former partner, MatlinPatterson, went back in on its own. Besides MatlinPatterson, Air One was the only other bidder left.

Well, now Air One has pulled out as well and according to Reuters, “Transport Minister Alessandro Bianchi has said [MatlinPatterson] has shown few ’signs of life.’”

Looks like it’s back to the drawing board for this sad, sad airline. Someone, please pull the plug.

Oh yes, it’s that time once again. Let’s check in on our good friends at Alitalia and see how messed up things are. Man, these guys are fun to pick on.

Over the last couple of months, the three potential investors (aka saviors) in the airline had a chance to dig in deeper and see what’s really going on. What did they find? Well, two of the bidders dropped out.

First, TPG, the US private equity firm that was involved in saving Continental and America West back in the day, walked away. It’s partner, Matlin Patterson, opted to come back in and take a shot at it without them. Then Aeroflot walked away saying that they weren’t allowed access to enough information for them to truly evaluate the opportunity. No surprise there. So really, the only original bidder left is another Italian airline, Air One. Bids are due July 12.

Of course, when bidders drop out, that opens the door for other bidders to step in. And that’s exactly what the rumors were saying a few days ago. The specific rumors were that Air France was finally going to step in and bid, but Air France says no way. You can never believe a PR team when they say that, but in this case, I would hope they aren’t that crazy. Alitalia is a lost cause (as any airline in Italy probably would be).

Meanwhile, the airline continues to excel in pissing people off. Here’s an amusing story (to read, not to experience) about a recent trip flying from Italy to Spain. Yup, sounds like Alitalia. At least they weren’t on strike.

And if you’ve ever earned miles in the airline’s MilleMiglia program, they’re about to be toast. View From the Wing reports that at the end of this year, the airline will shut down the program. Miles will only transfer if you fly them again, otherwise they disappear. Lame.

Things aren’t too rosy over on this side of the Pond for the airline either. Check out this lawsuit from the former Managing Director of Alitalia’s North American operation. He says he was told not to hire anyone who was gay, black, or over 30. Not hiring gay people at an airline?!? You’ve got to be kidding me.

It has been far too long since we’ve checked in on the airline I love to hate, Alitalia. So what’s new?

Well, They just reported stellar first quarter earnings. By stellar, I mean absolutely horrible, but not quite as bad as last year. They lost just a tad over 147m euros, far better than last year’s 156m euro loss. Yeehaw!

Meanwhile, in the crawl to privatize the airline, things are leisurely moving along. Sadly, Fabio Scaccia has been disqualified from bidding, but the final three contestants have been set. Italian airline Air One, Russian airline Aeroflot, and private equity group Texas Pacific Group are leading their own teams to win a date with, er, I mean the right to buy Alitalia. Final bids are due at the end of June. I’d go Price is Right style and bid $1 personally. But that might still be too much.

As the bids for Alitalia came in yesterday, I must admit I didn’t pay as much attention as I should have. In the middle of the group of private equity investors and a lone airline was buried an individual named Fabio Scaccia.

Fabio is a high school teacher in a suburb of Rome and he makes a mere 1,200 euros a month. Now considering that Alitalia is projecting 4.33 billion euros in revenue for 2006, you’d think that a 1,200 a month salary wouldn’t quite be enough to be able to buy the airline. Then again, they are projecting a horrendous loss of 380 million euros for the year, so they should have to pay this guy to take them over.

Seriously though, how did this guy get his bid into the process? Well in true Alitalia fashion, the process was a mess. According to this article, Fabio went online and found the address. He put together an expression of interest and sent it off. Even though bidders had to have at least 100 million euros in assets, the Italian government didn’t even bother to check out the bidders. So, Fabio’s name joined the ranks of the big boys.

The funny thing is that he has a plan that would probably work better than what current management is doing. He says he’s happy with his salary and he’d be willing to work for the same amount running Alitalia. That alone would save the company more than 2.6 million euros per year considering the current CEO’s outrageous 225,000 euro salary PER MONTH.

Then Fabio would “concentrate on maintenance, invest in new aircraft and centre all the activities around a single hub in Rome (instead of having a second hub in Milan).” Hey, gotta give the guy credit for trying. He seems to have a better plan than anyone currently running the show, though I’m guessing the other 10 potential investors might be able to do a better job.

Today was the deadline for showing interest in buying a share of my favorite whipping boy Alitalia from the Italian government. We had heard a lot of people object in the past to the onerous terms - no layoffs or real route restructuring - but there was still interest from a surprising 11 buyers.

So, Jim, let’s meet our suitors on this week’s edition of . . .

Most of our suitors are private equity firms. Notably, we see Texas Pacific Group in there. These guys have done wonders in the past of investing in airlines, bringing in stellar management to fix them up, and then getting out of there with some good money. Every company has a price that makes sense for these guys, so if they can get the price low enough, it will be worthwhile for them. The question is, how low will they have to go?

Other than private equity companies, there’s one lone airline bidder. Air One, Italy’s second largest airline, would like to get in there and take over. I would be surprised if Italy let this happen simply because it might actually make sense. Both Lufthansa and Air France/KLM, both thought to potentially have had interest, said they weren’t going to jump in.

The next step is for Italy to go through and determine which bids should be allowed to move on to the next round. This will of course be determined after the swimsuit and formalwear competitions.