Colonel Savage
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Alitalia Seeks Bankruptcy Shield, Paving Way for Sale (Update1)
By Andrew Davis
Aug. 29 (Bloomberg) -- Alitalia SpA said it was insolvent and asked for protection from creditors, a move that will kick start a government-backed plan to sell the state-controlled carrier.
Under the so-called Phoenix plan, Alitalia's unprofitable units will be sold or liquidated and the airline business merged with Air One SpA, its biggest domestic rival, creating a debt- free carrier with 65 percent of the Italian market. A group of investors, led by Piaggio SpA Chairman Roberto Colaninno, will put up about 1 billion euros ($1.46 billion) to buy and finance the new carrier.
The government yesterday modified the country's main bankruptcy law to prepare for the Alitalia insolvency request. Industry Minister Claudio Scajola or Prime Minister Silvio Berlusconi will now appoint a special commissioner to implement the reorganization of the carrier and the sale of assets.
``This is a needed first step toward returning the company to profit,'' said Edoardo Liuni, an analyst at IlNuovoMercato in Rome. ``The next, fundamental move will be to choose the right international partner.''
Air France-KLM Group, Alitalia's partner in the SkyTeam alliance, said yesterday it may buy a stake in the new company. Air France dropped an offer to purchase the entire airline in April after opposition from unions and Silvio Berlusconi during his successful campaign to become prime minister. Berlusconi called the Air France bid supported by the former government ``arrogant'' and pledged to put together a group of investors to keep the carrier in Italian hands.
After coming to power, Berlusconi kept the airline in business with a 300 million-euro government loan and brought in Intesa Sanpaolo SpA, the country's second-biggest bank, to come up with a strategy to save a carrier that has lost more than 3 billion euros in the past seven years.
Job Cuts
The Intesa plan calls for as many as 7,000 job cuts. The government aims to make unemployment and other benefits available for seven years to workers whose jobs are eliminated. Some of the workers will be relocated to other state-run businesses. Leaders of Alitalia's nine unions are already balking at the cuts. Labor Minister Maurizio Sacconi will hold a meeting with them on Sept. 1 to discuss Alitalia.
Intesa Chief Executive Officer Corrado Passera said today that the next four or five weeks will be critical for the success of the plan.
Intesa will invest between 100 million euros and 150 million euros to take a stake of about 10 percent in the new airline. Among the 16 investors committed to the buyout, Colaninno's Immsi holding company will put up as much as 150 million euros and Atlantia SpA, the toll-road company controlled by the Benetton family, will invest up to that amount as well.
Antitrust Hurdle
The plan may meet resistance from European Union regulators. The European Commission is already challenging the state's 300 million-euro loan to Alitalia, saying it may constitute illegal aid under antitrust rules. Funds to cushion the effects of the job cuts may also be construed as aid. The government has sent the plan to the EU, where it's being reviewed, EU Transport Commissioner Antonio Tajani said Aug. 27.
The Italian government has been trying to sell Alitalia for more than two years. Former Prime Minister Romani Prodi first held an auction process, which failed when all the potential bidders dropped out after rejecting the state-imposed conditions for purchase. Air France was then chosen over Air One to buy Alitalia, before dropping its offer in April.
Paris-based Air France owns 2 percent of Alitalia. The Italian carrier was supposed to participate in the 2003 merger between Air France and KLM Royal Dutch Airlines NV that formed Europe's biggest airline by revenue. Alitalia was excluded from the tie-up because of its deteriorating financial situation. The carrier hasn't posted an operating profit in nine years.
By Andrew Davis
Aug. 29 (Bloomberg) -- Alitalia SpA said it was insolvent and asked for protection from creditors, a move that will kick start a government-backed plan to sell the state-controlled carrier.
Under the so-called Phoenix plan, Alitalia's unprofitable units will be sold or liquidated and the airline business merged with Air One SpA, its biggest domestic rival, creating a debt- free carrier with 65 percent of the Italian market. A group of investors, led by Piaggio SpA Chairman Roberto Colaninno, will put up about 1 billion euros ($1.46 billion) to buy and finance the new carrier.
The government yesterday modified the country's main bankruptcy law to prepare for the Alitalia insolvency request. Industry Minister Claudio Scajola or Prime Minister Silvio Berlusconi will now appoint a special commissioner to implement the reorganization of the carrier and the sale of assets.
``This is a needed first step toward returning the company to profit,'' said Edoardo Liuni, an analyst at IlNuovoMercato in Rome. ``The next, fundamental move will be to choose the right international partner.''
Air France-KLM Group, Alitalia's partner in the SkyTeam alliance, said yesterday it may buy a stake in the new company. Air France dropped an offer to purchase the entire airline in April after opposition from unions and Silvio Berlusconi during his successful campaign to become prime minister. Berlusconi called the Air France bid supported by the former government ``arrogant'' and pledged to put together a group of investors to keep the carrier in Italian hands.
After coming to power, Berlusconi kept the airline in business with a 300 million-euro government loan and brought in Intesa Sanpaolo SpA, the country's second-biggest bank, to come up with a strategy to save a carrier that has lost more than 3 billion euros in the past seven years.
Job Cuts
The Intesa plan calls for as many as 7,000 job cuts. The government aims to make unemployment and other benefits available for seven years to workers whose jobs are eliminated. Some of the workers will be relocated to other state-run businesses. Leaders of Alitalia's nine unions are already balking at the cuts. Labor Minister Maurizio Sacconi will hold a meeting with them on Sept. 1 to discuss Alitalia.
Intesa Chief Executive Officer Corrado Passera said today that the next four or five weeks will be critical for the success of the plan.
Intesa will invest between 100 million euros and 150 million euros to take a stake of about 10 percent in the new airline. Among the 16 investors committed to the buyout, Colaninno's Immsi holding company will put up as much as 150 million euros and Atlantia SpA, the toll-road company controlled by the Benetton family, will invest up to that amount as well.
Antitrust Hurdle
The plan may meet resistance from European Union regulators. The European Commission is already challenging the state's 300 million-euro loan to Alitalia, saying it may constitute illegal aid under antitrust rules. Funds to cushion the effects of the job cuts may also be construed as aid. The government has sent the plan to the EU, where it's being reviewed, EU Transport Commissioner Antonio Tajani said Aug. 27.
The Italian government has been trying to sell Alitalia for more than two years. Former Prime Minister Romani Prodi first held an auction process, which failed when all the potential bidders dropped out after rejecting the state-imposed conditions for purchase. Air France was then chosen over Air One to buy Alitalia, before dropping its offer in April.
Paris-based Air France owns 2 percent of Alitalia. The Italian carrier was supposed to participate in the 2003 merger between Air France and KLM Royal Dutch Airlines NV that formed Europe's biggest airline by revenue. Alitalia was excluded from the tie-up because of its deteriorating financial situation. The carrier hasn't posted an operating profit in nine years.