Sunday, May 21, 2017

Italy Looks for Buyers for Airline: The Italian government put the country’s struggling flag carrier up for sale, but a buyer may be hard to find

The Wall Street Journal
By Robert Wall
May 18, 2017 1:39 p.m. ET

It could finally be arrivederci for Alitalia SpA, the Italian flag carrier that shuttles the pope around the world.

Italy’s government put the airline up for sale this week, seeking expressions of interest from bidders before a June 5 deadline. That followed months of fruitless talks with labor unions and the carrier’s shareholders, including its biggest, Abu Dhabi-based Etihad Airways.

A one-time symbol of the country’s postwar la dolce vita, Alitalia has racked up years of losses amid competition from a swarm of budget airlines in Europe. Three years ago, Etihad poured in cash to refresh the carrier, retraining cabin crew and replacing fading interiors with Italian-designed leather seats.

But that hasn’t been enough. Alitalia has lost billions of dollars over decades, amassing more than $3 billion in debt. The airline, which hasn’t yet published results, signaled it may have had an operational loss exceeding $600 million last year.

Italy, Alitalia’s home market, demonstrates the airline’s losing battle to woo customers. In 2010, the carrier commanded 29% of Italy’s domestic market, according to Euromonitor. In 2015, the last year data is available, that had dropped to 25%, in a commercial-aviation market in which rivals typically fight hard for every 10th of a percentage point.

The three biggest budget carriers flying in Italy, meanwhile, boosted their share from just over 12% in 2010 to 16% five years later. Ireland’s Ryanair Holdings PLC is now the biggest airline in Italy by passenger numbers.

Earlier this month, Alitalia filed for what is essentially bankruptcy-court protection from creditors, for the second time in a decade. The airline declared insolvency after employees rejected a restructuring plan put forward by its major shareholders.

Etihad owns 49% of the airline and refused to put more cash into Alitalia without significant concessions from workers. A consortium of Italian investors owns the rest.

After failing to broker a compromise, the Italian government said it would run an auction for the airline. Alitalia said it expects Rome to name bankers to advise on the sale in coming days.

Analysts and aviation executives say the government will struggle to find a buyer. Many of Europe’s biggest airlines have ruled out making a bid. Non-European buyers are limited to minority stakes.

That makes liquidation, a breakup or a major restructuring real possibilities. The government has indicated it is willing to put another €600 million ($668 million) into the airline to keep it flying through the busy summer travel season, as it seeks a buyer. It has ruled out nationalizing the carrier, but Alitalia’s 12,500 jobs may make a full-fledged wind down too high a political price.

“I don’t believe there will be a buyer for the existing company,” said Sven Reinke, senior vice president at Moody’s Investors Service Ltd. A debt-free liquidation process could draw interest from some airlines eager to take over specific rights, he said, but that may be the extent of the interest.

The company may still have one attractive asset: Its name.

Synonymous with the glamorous jet set of the 1960s, Alitalia flew movie stars like Rock Hudson and Ingrid Bergman when they came to film in Rome. At its peak, it was Europe’s No. 3 carrier by passengers flown. Its green-and-red livery has been the backdrop to papal arrivals around the world.

A smaller, less well-known airline might be interested in snapping up the brand alone, said HSBC analyst Andrew Lobbenberg. But he adds that an airline buyer swooping in for all of the company is unlikely.

—Manuela Mesco contributed to this article.

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