Russia Seeks to Buy Alitalia--Takeovers and Mergers Continue Globally

The national Italian airline has been in financial trouble for quite some time—it lost $540 million in 2006--and has been the source of rumors of takeover bids by other airlines such as KLM-Air France, none of which have born fruit. Provisions of a purchase pushed by the government include maintenance of certain routes within the country and abroad as well as preservation of the Italian identity of the airline.

Now the Russian carrier, Aeroflot, is reported to be joining two other groups in bidding for the Italian government's holdings in Alitalia. For its part, Russia has been enjoying profits from its gas and oil sales. Aeroflot is joining with Unicredit, an Italian bank, in its bid. Others in serious contention are a financial consortium that includes the U.S.-based private equity firm, Texas Pacific Group (TPG) and Mediobanca, an Italian bank. Rounding out the field is AP Holdings that has a relationship with Alitalia's largest domestic competitor, Air One, that partners with Lufthansa. Italy hopes to have the entire matter settled by July.

Lufthansa's name appears again as a possible purchaser of the Spanish flag carrier, Iberia. Now TPG—bidding for Alitalia—is said to be bidding $5.2 billion for the Spanish airline. In light of the possible bid by TPG, British Airways that presently has 10% of Iberia's stock might consider selling that holding.

In Brazil, the budget airline, Gol, is buying its competitor, Varig, for $275 million and will take over its $45 million in debt. The two airlines will continue to operate as separate companies. Gol will be gaining access to Varig routes to the United States and Europe as well as slots at the São Paulo airport.

Although Gol will maintain its low-cost, low-fare business model, it is taking control of the VarigLog cargo business. With a doubling of planes to 34 and increased destinations, the country's leading airline, TAM, will have increased competition.

Expected to be completed by June is the merger of India's two state-owned airlines, Air India and Indian Airlines. Both airlines have suffered serious losses of market share. Indian competitors Jet Airways and Air Deccan have moved ahead of the airline. Air Transport World notes Air India has seen its international business decline, as it shifts to international airlines with greater access to India and private carriers that have begun serving international destinations.

For several years both airlines have lacked sufficient planes to effectively compete. They have made major moves in plane acquisition and will be taking delivery of more than 100 aircraft over the next five years. The merged entity will look for economies of scale, with reduction in costs for maintenance, ground operations and more.

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