Air France-KLM Moves Closer to Acquiring Alitalia

As might be expected, such an undertaking has been underway for some time, although it has picked up speed of late. In December last year two groups—down from a previous short list of six—were looking to acquire control of the financially strapped airline. The other bidder at the time was AP Holding, which controls Italy’s largest privately held carrier, Air One. At that time, the Alitalia (AZ) board deferred a decision as to with which group it would negotiate. Although the board did prefer AF-KLM, the final decision for sale of its 49.9% stake in AZ rested with the Italian government.

At last, Tommaso Padoa-Schoppia, Italy’s Minister of Finance, gave permission to the opening of exclusive talks between AF-KLM and AZ. Following an announced timetable, a proposal to combine the airlines and have the AF-KLM group gain control of the Italian airline received unanimous approval of the Alitalia board of directors. Those directors noted that the offer would preserve the airline’s assets and provide stable restructuring and long range development.

The deal is said to cost AF-KLM €138 million. In an optimistic appraisal, AF-KLM feels that by bringing AZ into their group and implementing a new plan, Alitalia could return, “to operating profit as early as 2009 and to rapidly move to operating margin levels in line with those of other major European airline companies.”

There are hurdles yet to be overcome before everything is settled. One condition, endorsement by the Italian Ministry of Economy and Finance, has been met. European Union approval is expected by the end of June. Crucial to the success of the deal is a buy-in by AZ unions.

Reports are that part of the AF-KLM plan for AZ’s restructuring and relaunch calls for severe cuts in medium- and long-range flights from the Milan Malpensa Airport, using a single major hub at Rome’s Fiumicino Airport. KLM’s major hub is at Amsterdam’s Schiphol Airport and AF’s at Charles de Gaulle Airport at Paris. Such reductions and realignments, among other factors, will mean a reduction in the AZ workforce of 1,600 by 2010.

This may be the biggest monkey wrench in the works. AF-KLM has set a deadline of March 31 for certain conditions to be met. On March 18, AF-KLM chairman, Jean-Cyril Spinetta, met with the representatives of the major Italian trade unions at Alitalia’s head office. “The aim of the Air France-KLM group is not to take over Alitalia, but to see whether it is possible to build a major global airline group together with the entire Alitalia workforce,” he said.

Spinetta offered to delay phasing out of AZ cargo operations—something in the restructuring and reorganization plan—for two years. “We wish to reach an agreement with you, for each category of staff you represent,” he continued in his presentation to the unions. “No service business can possibly succeed without the commitment of all its personnel. With your contribution, Alitalia will once again become profitable.”

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