UPDATE 2 -Etihad chief aims to seal Alitalia deal as union warns on jobs

Wed Jul 16, 2014 4:30pm EDT

Related Topics

* Etihad CEO expects to conclude talks by end of July

* Alitalia's creditors agree in principle to debt restructuring

* Majority of unions give OK to Alitalia job cuts (Adds CGIL union rejects accord)

By Steve Scherer

ROME, July 16 (Reuters) - The chief executive of Etihad Airways said a deal to acquire nearly half of Alitalia could be wrapped up this month but warned that cuts would be needed to make the loss-making carrier profitable, prompting opposition from Italy's largest union.

Abu Dhabi's state-owned Etihad plans to buy 49 percent of the loss-making airline in a deal that Rome hopes will bring Alitalia the money it needs to invest in a new strategy focused on more lucrative long-haul routes.

"We want to guarantee the success and long-term viability of Alitalia or we wouldn't be here," Etihad CEO James Hogan told journalists at an event in Rome.

He said that while all parties were focusing on concluding the negotiations by the end of this month, the deadline could be extended if needed.

A final agreement has been held up by talks over thousands of job cuts and debt restructuring at Alitalia requested by Etihad as a condition for the deal.

Alitalia's creditors, which include Italy's two biggest lenders Intesa Sanpaolo and UniCredit, have in principle agreed to restructure parts of Alitalia's debt by writing off some of it and converting other parts into equity.

The majority of the trade unions representing Alitalia workers have also given the green light to jobs cuts of about 1,635, which are less than the 2,250 requested by Etihad but still represent a blow for a country where unemployment is at its highest level since the 1970s.

However on Wednesday, the CGIL, Italy's largest union, refused to endorse the deal.

In a letter to Transport Minister Maurizio Lupi, CGIL leader Susanna Camusso said the accord worked out on July 12 was unacceptable and criticised the "incomprehensible position of the company which has rejected any mediation aimed at avoiding compulsory redundancies". Despite the criticism, the union's opposition is not expected to threaten the deal.

"The Alitalia brand could be one of the most successful in Europe," Hogan said, but added that the airline, which has made an annual profit only a few times in its 68-year history and received numerous state bailouts, needed to be downsized first.

"We must have the right starting point, we need the right-sized airline," he said.

PROFIT PLEDGE

Etihad has promised to return Alitalia to profit by 2017, turn Rome's Fiumicino airport into an intercontinental hub and boost links from Milan, an Italian government source has said.

Hogan declined to comment on any figures. However, Italy's transport minister said last month that Etihad was prepared to invest up to 1.25 billion euros ($1.69 billion) over the next four years to buy its stake and revamp the carrier.

Last year Alitalia had tried to secure more capital from former top shareholder Air France-KLM, but the two disagreed over debt restructuring and the Franco-Dutch group let its 25 percent stake be diluted to 7 percent.

A marriage with Etihad, however, could bring Alitalia the money it needs to invest in higher-margin, long-haul routes after it has struggled to compete against low-cost airlines and high-speed trains on domestic and regional routes.

"Etihad's plan for Alitalia is more modest than what other investors have proposed in the past, but it's also more credible because the focus is on long-haul where Alitalia can get the profit margins it needs," said Andrea Giuricin, a transport analyst at Milan's Bicocca university.

Abu Dhabi-based Etihad already has stakes in Air Berlin and Aer Lingus. A stake in Alitalia, which offers access to Europe's fourth-largest travel market and flies 25 million passengers a year, would further its efforts to expand its reach in Europe.

Analysts said Etihad's investment would also open Alitalia to further integration in the European airline market. ($1 = 0.7390 Euros) (Additional reporting by Alberto Sisto; Writing by Agnieszka Flak; Editing by David Goodman)

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