Italy Meets Alitalia Executives as 1,600 Job Cuts Seen Ahead
(Bloomberg) -- As the new Italian government of Paolo Gentiloni hammers away at a rescue plan for beleaguered lender Banca Monte dei Paschi di Siena SpA, it’s suddenly contending with another corporate crisis: the future of airline Alitalia SpA.
Executives from key investor Etihad Airways and Alitalia -- which went bankrupt in 2008 after rescue attempts involving the state and private investors failed, and which teetered on the brink of collapse in 2014 -- met Italian ministers on Monday.
Economic Development Minister Carlo Calenda and Transport Minister Graziano Delrio asked Alitalia to put forward within weeks “a detailed industrial plan agreed to by shareholders, banks and creditor financial institutions,” Calenda’s ministry said in an e-mailed statement. The ministers said any possible discussion on job levels would be tackled only after this.
The executives had planned to discuss new restructuring measures, three people familiar with the discussions said before the meeting. The plan could include as many as 1,600 job cuts, according to two of the people, who asked not to be identified before an official announcement.
Time may be running short. Less than three years after Etihad, based in Abu Dhabi, bought a 49 percent stake as part of a plan to revive the Italian airline, Alitalia was notified in December by investors and creditors that it had 60 days to come up with a viable cost-cutting plan. Etihad Group CEO James Hogan and other shareholders took part in Monday’s meeting.
Alitalia has also authorized Etihad to pump in an additional $231 million in funding via “semi-equity” financial instruments that lack voting rights, according to minutes of an extraordinary shareholders’ meeting for the Italian carrier held on Dec. 22.
After reaching an agreement with shareholders, including short-term financing deals with Italy’s two biggest banks, Intesa Sanpaolo SpA and UniCredit SpA, Alitalia plans talks with labor unions, suppliers, aircraft leasing companies and other partners on potential spending reductions, including a road map for job cuts, the Rome-based carrier said Dec. 22. After losing almost 200 million euros ($211 million) in 2015, Alitalia’s deficit for last year could be near 400 million euros, two people said. Alitalia declined to comment.
Along with the job cuts, the new plan calls for a shift in business model away from the airline’s traditional schedule of short and medium-range flights toward a setup that would allow it to better compete with low-cost carriers, according to the people. Alitalia would also phase out unprofitable routes like Milan Malpensa-Rome, one of the people said.
“The next two months are critical,” CEO Cramer Ball, who has been in his post for less than a year, said in the Dec. 22 statement. Alitalia denied on Dec. 27 that Ball will leave the company in the next two months, following a report in daily Il Messaggero.
The plan to meet with unions comes after the carrier froze salaries at the end of 2016 before discussing a new labor deal.
“Two years ago we agreed on 2,000 job cuts as a condition for Etihad’s investment and now they can’t tell us again the issue is labor costs, we won’t give the green light to any lay-offs,” Claudio Tarlazzi, leader of the Uiltrasporti union, said by phone.
Etihad, whose stake purchase was part of a 1.76 billion-euro rescue of Alitalia, has vowed to transform the struggling carrier into a five-star airline.