Alitalia to be nationalized again

The “Cura Italia” decree includes provisions to nationalize the Italian flag carrier after years on the verge of bankruptcy and failed privatization attempts. 500 millions of euros of public funds have been granted to support the airline

A new chapter has been added to the history of Alitalia, a history rich of privatization attempts, insolvency procedures and failed mergers and alliances. The details of this new chapter are specified in the “Cura Italia” decree, which include provisions and measures to support the Italian economy during the pandemic, and that was published on March 17. Half a billion of euros have been granted to support Alitalia and other airlines registered in Italia. A public-owned NewCo has been created and is expected to take over operations from Alitalia. As such, Alitalia will be nationalized once again, after years of insolvency procedures, while the search for a potential buyer has been temporarily suspended.

Alitalia has been through heavy turbulence in the recent past. Starting from the late 90s, Alitalia has had to cope with a series of changes that have affected the company’s competitiveness and profitability. The changes and the crises that have affected the airline industry such as the emergence of low cost carriers in Europe and the sudden drop in demand following the 9/11 attacks have taken a toll on the company’s profit margins. In the year 2000, Alitalia’s executives and the Italian Government, which held a majority stake in the company at the time, attempted to form a partnership with KLM, with the goal of merging the two companies in the future. The purpose of the partnership was to strengthen the Italian airline’s financial position, which had been severely damaged. Nonetheless, the attempt failed and KLM signed a strategic partnership with Air France soon afterwards.

In 2006, the government led by Romano Prodi decided to sell the remaining shares owned by the government, thereby triggering a first privatization attempt. Following the sale of the equity stake by the government, Air France-KLM showed interest in buying the company out and to include it in its alliance. Negotiations, however, were interrupted and the offer was revoked by Air France-KLM, citing a climate of political uncertainty as the reason for walking out of the negotiations.

The government led by Silvio Berlusconi, which took office in 2008, facilitated the creation of a consortium to acquire the company, as other airlines were no longer interested in Alitalia. The consortium, formed by a group of Italian banks and entrepreneurs, took over Alitalia and started a new company, in which the assets of the old company were transferred, while another, publicly-owned company inherited the company’s debts and liabilities. The following year, Air France-KLM purchased 25% of Alitalia’s stocks and signed an agreement to enhance the partnership between the two airlines.

Alitalia, however, entered a new crisis within three years, partly because of the effects of the Great Recession on the airline industry. The Italian government started looking for a new buyer for an airline that was yet again on the verge of bankruptcy yet again. Etihad Airways came forward with a proposal and, following negotiations with the Italian Government, agreed to purchase 49% of Alitalia’s shares. The parties agreed to create another NewCo, this time named Alitalia – Società Aerea Italiana. The partnership with Etihad lasted until 2017, when unions rejected the company’s proposal to slash labor costs to reduce overwhelming losses. Alitalia was forced, once again, to follow insolvency procedures while the government financed the airline with public loans and started looking for a new buyer.

Negotiations lasted until last January, when it became evident that no airline would have been able to buy the company out. Indeed, the outbreak of Covid-19 cases on every continent has had devastating effects on the airline industry, forcing companies to cut expenses wherever possible. Such a dire scenario has led the Italian Government to grant half a billion of euros of public funds to support Alitalia and to create yet another NewCo, which is supposed to inherit its predecessor’s activities and another company in which to transfer debts and liabilities. The Italian Ministry of Economy and Finance will own the NewCo completely.

The current company administrator, Giuseppe Leogrande, who was appointed by the government to lead the company during the insolvency procedure, was asked to slash costs and increase efficiencies and will carry on in doing so during this new phase in the company’s history. Leogrande has asked the government to grant redundancy funds (“cassa integrazione”) to 3,960 employees out of a total of 11,600 in order to take them off the company’s payroll, as the company faces a decrease in flight frequencies due to travel restrictions imposed by countries affected by the pandemic and a severe drop in demand. The details of Alitalia’s nationalization will be released in the following weeks. The search for a potential buyer appears to be suspended, for the moment, at least.

The government received harsh criticism for taking the decision to nationalize Alitalia again. Specifically, critics have mentioned the billion and a half of euros of public loans that were granted in recent years to the airline and that were never paid back. Andrea Giuricin, an economist who lectures at Università Bicocca in Milan, denounced the government’s decision and highlighted that the various government bailouts of Alitalia amounted to nine billions of euros in public funds. Among the reasons that may have pushed the government to take ownership of the airline, in addition to deteriorating market conditions, is the need to repatriate Italian nationals stranded abroad due to flight cancellations in numerous countries. Alitalia, in coordination with the Italian Ministry of Foreign Affairs, has made aircrafts and crews available to fly Italian nationals back home and several repatriation flights have been carried out already. Others are planned for the following days.

Yet another nationalization seems to be on the horizon for Alitalia, following years of difficulties that have taken the company on the verge of bankruptcy and have forced governments to look for potential buyers almost constantly. Several details have yet to be clarified and so are the long-term intentions of the Italian government with respect to the “new” flag carrier.