Bankrupt Again, This Time Alitalia Will Struggle to Find Rescuer

(Bloomberg) -- After its second bankruptcy filing in a decade, Alitalia SpA’s survival hinges once again on luring a buyer prepared to put the attractions of the Italian travel market ahead of the risk of pouring money into one of Europe’s most notoriously unprofitable businesses.

Only this time round, there may be no takers.

Alitalia’s 2008 rescue saw it emerge from the ashes of its 60 year-old predecessor through a merger with ailing rival Air One that was financed by a roster of Italy’s leading banks and orchestrated by a government shareholder unwilling to let a well known national brand go.

Since then it has lost almost 3 billion euros ($3.3 billion). What’s more, the government no longer owns a stake and has said several times that re-nationalization is out of the question, while UniCredit SpA revealed last month that it alone lost almost 500 million euros via its involvement in the Compagnia Aerea Italiana consortium that led the bailout.

And Abu Dhabi-based Etihad Airways PJSC’s failure to halt losses at Alitalia after taking a 49 percent holding in 2014 and plowing in about 1 billion euros is hardly a selling point for prospective investors. The pessimism surrounding the outlook for Alitalia was indicated when a 375 million-euro bond due 2020 fell to 15.9 cents on the euro on news of the insolvency filing, down from about 45 cents on April 21, according to price data compiled by Bloomberg.

Bankrupt Again, This Time Alitalia Will Struggle to Find Rescuer

“It really doesn’t look good,” said Jonathan Wober, an airline analyst at CAPA Centre for Aviation. “The government has been pretty clear it won’t make an investment, shareholders have said they are not putting in any more money without employee agreement to the restructuring plan, and the larger airlines will likely wait to see if Alitalia collapses so they can occupy the vacuum.”

Ownership Curb

Alitalia shareholders voted unanimously to file for insolvency administration, the carrier said Tuesday after workers last week rejected 1,600 job cuts linked to a 2 billion-euro refinancing plan. Under Italian law, the government will appoint supervisors to turn around the company or order its liquidation.

Etihad said that without the participation of all other stakeholders it’s not prepared to continue to invest. Its struggle to make Alitalia pay may be particularly off-putting for carriers subject to the 49 percent cap on ownership of European Union airlines by investors based outside the bloc. That curb has denied the Persian Gulf giant full management control.

One such company would be Etihad’s Mideast rival Qatar Airways, which recently bought 49 percent of Italian regional operator Meridiana SpA. While Meridiana would be entitled to buy all of Alitalia, Qatar Air would still limited to a minority of the combined entity.

“I don’t see any way that Qatar would do anything with Alitalia,” said John Strickland, director of JLS Consulting in London.“Meridiana is a different animal. That deal has taken time precisely because they negotiated the labor issues there, having been mindful of what happened to Etihad.”

Among airlines able to buy all of Alitalia, Air France-KLm Group purchased a 25 percent stake for 323 million euros in 2009, before becoming disillusioned by continuing losses and declining to take part in a capital increase in 2013. Within two years the holding was reduced to less than 1 percent.

Sit Tight

British Airways owner IAG SA isn’t regarded as a likely bidder, having focused on purchases that deliver long-haul connectivity, especially across the Atlantic, rather than European market share.

Discount carriers led by Ryanair Holdings Plc and EasyJet Plc seem most likely to sit tight and let the situation play itself out. EasyJet has made only one major acquisition in its history and Ryanair has eschewed takeovers, saying it’s better to let less efficient rivals fold. The Irish carrier ranked No. 1 in Italy as of 2015 with a 23 percent market share, versus 18 percent for Alitalia, according to analysis by Milan Bicocca University.

Moody’s Investors Service said Tuesday in a note to clients that other low-cost specialists including IAG’s Vueling and Norwegian Air Shuttle ASA are also likely to step up their expansion plans in Italy should Alitalia be liquidated.

The lack of willing buyers leaves Deutsche Lufthansa AG as Alitalia’s best bet for a rescue.

The German giant certainly has a track record in taking on struggling carriers, purchasing Swiss International Air lines, which had emerged from the bankruptcy of Swissair, in 2005, Austrian Airlines in 2009 and last year agreeing to take full control of Brussels Airlines.

Lufthansa is planning to integrate the former Belgian flag carrier into its low-cost Eurowings arm and most promisingly for Alitalia has also agreed to take a batch of 38 aircraft from unprofitable local rival Air Berlin -- in which Etihad is also the largest shareholder.

But while Chief Executive Officer Carsten Spohr has said that taking over the bulk of Air Berlin might be a possibility, Chief Financial Officer Ulrik Svensson said on April 27 that the company is “clearly not in there to buy Alitalia.”

Despite that, La Stampa said Sunday that Lufthansa could be involved in a restructuring alongside Etihad, with which it has an alliance, and state rail operator Ferrovie dello Stato. Such a deal would limit Alitalia to long-distance flying, with high-speed trains taking over more travel, it said.

In the end, Alitalia’s only real attraction may prove to be physical assets. Even before the filing for bankruptcy proceedings, Malaysia Airlines Bhd. said it had approached firms that lease Airbus SE A330 planes to the Italian carrier about taking over some of the wide-body jets.

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