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UPDATE 2-Etihad on verge of sealing deal to rescue Alitalia
August 7, 2014 / 1:45 PM / 3 years ago

UPDATE 2-Etihad on verge of sealing deal to rescue Alitalia

* Abu Dhabi carrier to take 49 percent stake in Alitalia

* Accord due to be signed on Friday

* Minister hails “important signal” for Italian economy (Adds details, background)

By Antonella Cinelli

ROME, Aug 7 (Reuters) - Loss-making Alitalia is expected to seal a deal with Gulf carrier Etihad on Friday to rescue the struggling Italian airline from the brink of bankruptcy.

Etihad will take a 49 percent stake in Alitalia and invest 1.2 billion euros ($1.6 billion) in the airline over the next three years as part of a restructuring, which is expected to entail 1,635 job cuts.

After a final meeting between Italian government officials and Etihad Chief Executive James Hogan on Thursday morning, Transport Minister Maurizio Lupi confirmed the deal would be signed after several months of negotiations.

Lupi hailed the deal as a boost for Italy’s struggling economy, which has slipped back into its third recession in six years.

“This is a very important signal, with all that’s been said about Italy on its knees and in recession,” he told reporters. “This is a great business alliance with great investments planned for the future.”

For fast-growing Etihad, founded in Abu Dhabi just over a decade ago, the investment will open up Europe’s fourth-largest travel market and extend its reach in Europe, where it already has stakes in Air Berlin, Air Serbia and Ireland’s Aer Lingus.

For the Italian government, grappling with unemployment at levels not seen since the 1970s and an economy blighted by years of stagnation, a deal to keep the national flag-carrier flying and prevent potentially far more job losses was vital.

In a sign that Alitalia’s problems were not over, however, its ground staff at Fiumicino airport in Rome were preparing to conduct a wildcat strike at the weekend, with large numbers of employees reporting in sick, Italy’s Strike Oversight Commission said on Thursday.

That follows a wildcat strike by baggage handlers at Fiumicino on Wednesday.

BREAKEVEN

Alitalia was one of the most visible symbols of Italy’s postwar renaissance as a major European industrial power, but it has rarely made a profit since its first flight in 1947, and it nearly disappeared in a previous crisis in 2008.

Squeezed by competition from low-cost budget airlines and high-speed trains on profitable routes such as Rome to Milan, it has been dependent on state handouts and has lacked the financial muscle to develop more profitable long-haul routes.

Without the Etihad deal, Alitalia’s future would have been extremely uncertain, but the exact scale of its financial difficulties remains unclear. It has still not published results for 2013.

Sources close to the company told Reuters last year it was expected to post a net loss of some 500 million euros, almost twice the 280 million euro loss the year before. The company denied that report, but similar figures have been cited by Italian newspapers.

Lupi said an industrial plan sets out measures for Alitalia to break even by 2017 and become profitable thereafter, creating jobs and reviving Italy’s airport system. This would include turning Fiumicino airport into an international hub and developing connections with Milan.

Under the agreement, existing Alitalia shareholders including state-owned post office operator Poste Italiane will group their holdings in a new so-called “mid-company” that will control 51 percent of shares in the restructured airline.

The shareholders, most of whom acquired stakes as part of the 2008 privatisation, also include Italy’s two biggest lenders Intesa Sanpaolo and UniCredit, highway operator Atlantia and fashion group Benetton.

Alitalia’s creditors, a group that also includes Intesa Sanpaolo and UniCredit, agreed to restructure part of its debt, which totalled around 800 million euros at the beginning of June, by writing off some of it and converting part into equity.

A 300 million euro capital increase, due to receive final clearance on Friday, should ensure the airline’s immediate funding needs are covered.

Rival airlines have expressed concern that the deal could amount to illegal state aid, but Lupi said Rome was confident that European authorities would not pose any problems.

“We have followed all the European Union’s requirements. In September we will present a document in which we will explain step by step how the Alitalia affair has been managed,” Lupi said at a press conference in Rome.

The majority of the trade unions representing Alitalia workers have given the green light to the planned jobs cuts, which will be fewer than the 2,250 requested by Etihad.

1 US dollar = 0.7477 euro Additional reporting by Giselda Vagnoni; Writing by James Mackenzie; Editing by Mark Potter and Jane Baird

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