* Alitalia needs 500 mln euros to stay in business
* State offers lifeline but plan depends on shareholders
* Eni threatens to cut fuel supply beyond Saturday
* Merger with Air France-KLM seen most viable solution
* No other proposal makes business sense - analyst
By Agnieszka Flak
MILAN, Oct 11 Alitalia, the Italian national
airline that has made a profit only a few times in its 67-year
history, once again risks collapsing as the government scrambles
to find investors willing to rescue its problem child.
Rome offered a financial lifeline to Alitalia through the
state-owned post office, but the plan depends on private
shareholders ploughing more money into what many investors
regard as a corporate lost cause.
The carrier, whose board meets on Friday, needs 500 million
euros ($676 million) to stay in business as it has lost nearly
700,000 euros a day since being privatised in 2008 and has debts
of around 1 billion.
Cash-strapped Italy is realising it may no longer keep its
flag carrier in national hands. However, Rome is loath to accept
a politically sensitive sell-out to Air France-KLM,
Alitalia's top shareholder with a 25 percent holding, even
though analysts say no other option makes business sense.
Time is running out. Alitalia's management, the government
and banks have held talks daily for the last fortnight to keep
the airline's fleet in the air beyond this week.
The government said late on Thursday that Poste Italiane
would participate in a capital increase for the flag carrier.
However, it called on private shareholders to share the burden
of injecting new capital into the airline.
It gave no financial details. However, sources close to the
situation told Reuters earlier that the rescue plan envisaged
the state injecting 150 million euros into the airline, the same
amount as existing shareholders, while banks would provide an
additional 200 million euros in new loans.
Poste Italiane would contribute 75 million euros while the
rest of the state help would come in the form of credit
guarantees, the sources said.
"It's a bridging solution to guarantee the financial
survival of the company but it depends on a strong change in the
way the company is run," one of the sources said.
At stake are what the government says is a strategic
national asset, 14,000 jobs and a desire to buy time - the
fragile right-left coalition government led by Enrico Letta can
ill afford the risk of flights being grounded.
Energy group Eni has already threatened to stop
supplying fuel beyond Saturday if no rescue plan is agreed fast.
Air France-KLM has shown interest in taking control but its
offer comes with strings attached. Any cash injection by state
firms would win only breathing space, without tackling the
problems that got Alitalia into trouble.
"Politicians are looking for an alternative solution to a
rather obvious business-based deal with Air France," said Andrea
Giuricin, transport analyst at Milan's Bicocca University.
"Air France-KLM has its own financial problems, but at least
it knows how the airline market works. None of the other
proposals makes any business sense."
Various Italian governments have pampered Alitalia with more
than 4 billion euros in aid. Founded in 1946, the carrier, whose
uniforms were once designed by fashion icon Armani, has long
been the symbol of lavish spending and excessive staff benefits.
It once created a route to appease a minister who wanted to
fly to Rome from his hometown in the north. In the 1970s, unions
ended a strike only after it met their demand that cabin crew
should be picked up at home by a driver. Until 2008, staff flew
for free on its lucrative Milan-Rome route.
Most perks have gone since the airline was last rescued by a
group of 21 Italian investors in 2008 at the request of then
prime minister Silvio Berlusconi. Its costs are now lower than
Air France's and it has one of the youngest fleets in Europe.
The airline - whose initials for critics stand for "Always
Late in Takeoff, Always Late in Arrival" - has improved its
punctuality and in September fared better than British Airways
and Germany's Lufthansa, according to FlightStats.
But under the "Phoenix" rescue plan brokered by Berlusconi,
Alitalia focused on the domestic and regional markets - a bet it
lost due to competition from low-cost carriers and from
high-speed trains on the Milan-Rome route.
Its new CEO Gabriele Del Torchio is now pinning hopes on the
higher-margin long-haul market but needs money for big planes.
Here lies the benefit of a possible tie-up with Air France-KLM.
AIR FRANCE-KLM AGAIN
Back in 2008, Air France-KLM offered to invest up to 6.5
billion euros to revamp Alitalia despite union opposition. But
Berlusconi, who won that year's election promising to keep the
airline in Italian hands, turned this down.
Many among the current shareholders - which include bank
Intesa Sanpaolo and highway operator Atlantia
- are prepared to sell their stake, although having invested
around 1.5 billion euros they don't want to leave empty-handed.
Alitalia said on Sept. 26 that it had total available cash
of 128 million euros at the end of June, including unused credit
facilities. This is not much, considering Alitalia needs at
least 10 million euros a day to keep flying and has annual
operating costs of at least 3.7 billion euros, analysts say.
Air France-KLM is biding its time, hoping to buy Alitalia as
cheaply as possible, preferably without having to take on its
debt, analysts have said.
The marriage would probably mean severe cost cuts. "The
logical way to save Alitalia is for Air France to take over the
basic operating core and attach it to its own system, but this
means getting rid of the entire Alitalia back-office structure
and I don't know if the Italians are ready for that," said the
head of a European airline, asking not to be named.