Alitalia

Background information

At 6:00am on January 13, 2009, the first flight of Alitalia – Compagnia Aerea S.p.A. left Rome for Palermo. The new Alitalia is still in existence today; known as the “good company,” it was created in 2008 by extracting the financially “healthy” parts of the old Alitalia.

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The old Alitalia was founded in 1947.In 1957, it merged with another company, Linee Aeree Italiane, becoming Italy’s first airline. Both companies were owned by the IRI, a large government agency that controlled a sizable share of production and services in Italy after World War II, from steel to banks to telecommunications. Until the 1990s, Alitalia remained entirely under State control (first the IRI, and then the Ministry of Treasury). The first privatization occurred in 1996, under the Prodi government, but the Treasury maintained a majority shareholding. In 2001, after the terrorist attacks in the U.S., the whole airline industry faced a crisis. Unlike other companies, however, Alitalia was unable to recover. It was close to failure in 2006; in order to save it, the Prodi government decided to sell part of the shares that were still held by the Treasury, thus ceding control of the company. However, they were unable to find a buyer. In the fall of 2007, the government tried direct negotiation. An alliance with Air France-KLM was chosen, but the unions pulled out of the negotiations shortly thereafter. In the meantime, the Prodi government lost its majority in Parliament, and in May 2008, Silvio Berlusconi became prime minister. Berlusconi had declared himself to be against the negotiations, because he felt it was necessary to “preserve the Italian character of the company.” Air France then withdrew, and the so-called CAI, Compagnia Aerea Italiana, was set up, under the leadership of entrepreneur Roberto Colaninno (who, eight years earlier, had headed the takeover bid at Telecom Italia), with an important partner in Intesa Sanpaolo, led at the time by Corrado Passera. CAI took over Alitalia’s name and part of its activities (the so-called “good company”) for around one billion euro (700 million less with respect to Air France-KLM), while the 7,000 employees laid off in the transition were guaranteed seven years of unemployment insurance paid by the State, which also took on the costs of the “bad company” (around two billion euro).

Today, Alitalia must deal with competition from low-cost companies and, on the domestic front, the fast trains Frecciarossa and Italo on the Milan-Rome route. The company recently replaced its managing director for the second time in one year. On April 18, the controls were placed in the hands of Gabriele Del Torchio, formerly of Ducati, who faces a difficult challenge: the group closed 2012 with a loss of 280 million euro, four times that of the previous year.

Since then the situation at the airline has furtherly deteriorated in 2013 as it desperately needs a capital injection in order to avoid to go bankrupt. That’s why early in October 2013 the dossier of Alitalia landed on PM Enrico Letta desk who has now several options at disposal or a combination of them: a direct investment into Alitalia by Treasury financial arm Cassa Depositi e Prestiti, some sort of alliance with Italy’s railways Ferrovie dello Stato or an alliance/takeover with a foreing industrial partner, Air France itself or a cash-rich airline from the Gulf area.

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