(Even More) Storm Clouds on the Horizon for Alitalia

You’ve probably been wondering when there would be a new post on Alitalia. After all, the airline was supposed to have been sold by now, but alas, that hasn’t happened. Instead, the process continues to drag on and on. In the meantime, how is the airline still flying? Ah, well, it got an emergency loan from the government. Problem is… the European Commission is investigating whether that loan constitutes illegal state aid.

It wasn’t long ago that Etihad poured money into the bottomless Alitalia pit, claiming a new day had arrived. It spent money improving interiors, changing service, and of course, repainting airplanes. That was all a huge waste. Etihad’s investment blew up in its face. Alitalia put forward a plan to turn the airline around, but that was nearly a year and a half ago. What’s the hold up? Well, labor, of course. Being proud Italians with cushy airline jobs, labor shot down concessions a little over a year ago. The airline was immediately put into the Italian version of a bankruptcy reorganization. In that year, we haven’t seen much progress.

Last May, the Italian government poured €600 million into the airline. It added another €300 million in October after the airline continued to burn through its cash at an insane rate. You’d think having that kind of money tied up with the airline would encourage the Italians to actually try and sell it off one way or another to recoup its investment. But if that’s what you’d think, you don’t know Italy.

Alitalia is so entwined with Italy, that it’s a political hot potato. Alitalia received more than 30 offers at one point, though I imagine most of those were for desirable bits and pieces. But the Italians couldn’t do anything about those offers without knowing who was in charge, and there was a big election planned for March 4 of this year. So they decided to wait.

The election went as planned, but… oh Italy. No party gained a majority to rule, so parties had to work to build a coalition. Here we are two months later and there’s still no ruling coalition. They might try to form a short-term government or hold elections soon. Either way, there’s currently just gridlock.

This whole Alitalia sale was supposed to be wrapped up by April 30, but here we are in May, and we’re still waiting for real movement. It sounds like we’re down to three primary bidders now: Lufthansa, easyJet, and Wizz Air. It’s not clear what the details of these bids are, but presumably the Lufthansa bid is the most likely one to keep the airline as close to intact as possible.

You’d think this would mean that we’re close despite the lack of a ruling party in the country, but no. Just last week, the Italian government extended the deadline to the end of October. Will we have a trick or a treat this Halloween? Were I a betting man, I wouldn’t put my money on “treat.”

Remember that huge loan that Italy gave to Alitalia? Yeah, well the deadline for repayment was extended until December 15. You will notice that December 15 is more than six months after the loan was first made. That is apparently a problem. As the EC says:

The Commission’s current view is that the State loan may constitute State aid. It will now investigate further whether the loan satisfies the conditions under the Guidelines. The Commission has concerns that the duration of the loan, extending from May 2017 until at least December 2018, exceeds the maximum duration of 6 months allowed for a rescue loan under the Guidelines. Furthermore, the Commission has doubts as to whether the aid is limited to the minimum necessary.

So not only is Italy letting Alitalia keep the loan for a really long time, but it also may have given the airline more money than it actually needed as a bare minimum. Now, we wait and see what the EC decides.

In the meantime, Italy will be busy trying to a) find an actual ruling coalition to run that mess of a country and b) settle on a winning bidder who is willing to take Alitalia off the government’s hands. Remember, this is all happening with the backdrop of the newly-christened Air Italy ramping up with big Qatar-backed growth aspirations. For most airlines, this would be terrible, terrible news. But in Italy, it’s just another day in the saga that is Alitalia, the worst airline ever.

(Visited 3,698 times, 1 visits today)

Get Posts via Email When They Go Live or in a Weekly Digest

10
Leave a Reply

avatar
4 Comment threads
6 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
9 Comment authors
CraigTPABoris LevitanKilroyOliverRICARDO PALAGI Recent comment authors
newest oldest most voted
Italian dude
Guest

Appreciate and agree with your view of the airline and their woes but “Mess of a country” is pretty harsh and xenophobic.

Darin
Guest
Darin

Italy is a mess of a country politically. Venezuela is a mess of a country in every sense, and the US is a complete garbage fire. Italy doesn’t own “mess of a country” but the article isn’t about Venezuela or the U.S. or South Sudan…

Bobber
Guest
Bobber

Well, I guess all things are relative – we can’t all live in a country governed by an ultra-fit, stable genius…

Kilroy
Guest
Kilroy

I don’t think it was xenophobic, just a bit of a tongue in cheek way to describe things. Every country has its own issues. In the US strikes that shut down large businesses and industries are relatively rare, and private businesses (and sometimes governments too) tend to act a bit more quickly than they do in some other countries (some might call this a “Fire, Ready, Aim” approach). In some parts of the world it’s not uncommon for striking workers or protestors to physically block roads or traffic for days on end, without much government action to stop them. In… Read more »

Wild Bill
Guest

Great article like usual Crank. While the Italian government is always chaotic have you seen ours over the past 2 decades (or more)? And have you ever taken a poll with your readers on what they believe is the worst airline ever?

Ricardo
Member
Ricardo

I guess people get very sentimental when talking about flag carriers since it has to do with national pride etc but the case here is that Alitalia survives with money from the government which is people’s money which should not be used to keep an airline alive.

Oliver
Guest
Oliver

> which is people’s money which should not be used to keep an airline alive.

I am curious – Are you Italian or have you polled Italian taxpayers? Perhaps they feel differently about how their money should be spend (I wouldn’t know). US taxpayers have spend a lot of money keeping private businesses alive or otherwise supporting them. Look at the drama around Amazon HQ2.

cblock2
Member
cblock2

The EU tends to run on the “all members are equal, but some are more equal than others…” philosophy. Italy’s been allowed to flout state aid (and deficit) rules before with nothing more than a slap on the wrist, so Alitalia shouldn’t be too worried, at least not at this point. If this persists, though, the Commission may finally decide it’s time for Alitalia to meet the end it should have met many years ago.

Boris Levitan
Guest

Málev, Estonia Air, Lithuanian, and others died suddenly when the EC demanded repayment of state aid it ruled illegal. Treating Alitalia differently would be unequal.

cblock2
Member
cblock2

Yes, it would be. Some EU members are more equal than others. That’s my point.