MILAN Five years after Alitalia was rescued from bankruptcy, the options for the troubled Italian airline appear to be few: convince top shareholder Air France-KLM to support its new strategy or shut up shop.
Since being taken private by a consortium of Italian investors in early 2009, Alitalia has accumulated net losses of more than 840 million euros ($1.1 billion), debt of about 1 billion euros and is fast running out of cash.
An ambitious plan to become a strong regional player failed in the face of aggressive competition from low-cost carriers Ryanair and easyJet and from high-speed trains on its once-lucrative Milan-Rome route.
Alitalia's new CEO, turnaround specialist Gabriele Del Torchio, has already outlined a new plan to focus on the more lucrative long-haul market, but he desperately needs cash to buy the larger aircraft needed for inter-continental flights. The company says the new strategy will help it to break even in 2015 and return to profit in 2016.
At a board meeting on Thursday, Del Torchio is expected to seek approval for a 200 million euro capital increase, possibly underwritten by Air France-KLM, plus the same sum in fresh borrowing, sources close to the matter said.
Italy's government, meanwhile, is banking on Air France-KLM to make a cash investment and increase the 25 percent stake it bought in 2009, possibly taking control of the company.
Analysts expect such commitment to come with conditions, with the Franco-Dutch group unlikely to want to take on Alitalia's debt and support all of Del Torchio's long-haul ambitions, which could clash with its own.
Air France-KLM may want to follow the example of Lufthansa, which uses Vienna and Zurich to feed its long-haul flights out of its Frankfurt and Munich hubs, analysts said. Alitalia could also be used for point-to-point routes bypassing Air France-KLM's two main hubs, possibly linking Rome with the east coast of the United States and parts of Africa.
"I believe Air France-KLM is looking at more or less the same strategy: Charles de Gaulle and Amsterdam (airports) would remain the main hubs while part of their network would be operated by Alitalia on point-to-point routes," Oddo Securities analyst Yan Derocles said.
"This is the only solution for Alitalia."
Air France-KLM tried to take over Alitalia five years ago, but the deal was scuppered by Italy's Prime Minister of the time, Silvio Berlusconi, who asked Italian investors to rescue the company.
The Rome-based airline was entrusted to a disparate group of 21 Italian shareholders, including bank Intesa Sanpaolo, road operator Atlantia and holding group IMMSI.
The mix of political, banking and industrial interests meant that most have long ceased to take an active interest in the airline and some are prepared to sell their stakes. A lock-up that requires investors to seek board approval before selling their shares expires on October 28.
The Italian government has stated that it is open to Air France-KLM raising its stake to 50 percent but has said that it would look for an alternative if the French group were to treat Alitalia as a mere appendix to its larger fleet and did not develop a hub around Rome's Fiumicino airport.
But in the absence of other bidders, Italy's bargaining power may be limited. Etihad Airways, mentioned by Italian media as a possible partner, has distanced itself from the struggling carrier for now.
Even so, a strong partner may still be needed even with the backing of Air France-KLM, which is itself squeezed by weak demand for air travel, soaring fuel costs and intense competition.
Analysts estimate that Alitalia requires an injection of about 500 million euros to get through to next year, with more needed to sustain its ambitions on long-haul routes.
A tug of war between political and economic interests is likely to emerge, with Air France-KLM unlikely to want to give up on Alitalia, which has cut costs aggressively, added 30 new routes and offers access to Europe's fourth-largest travel market.
"Air France-KLM has no interest in merely watching a failure of Alitalia, as this would only strengthen its competitors," research firm CM-CIC Securities said.
However, the possibility of an Alitalia under French-Dutch control is likely to spark protests from politicians and unions, already in uproar over Spain's Telefonica increasing its stake in Telecom Italia, saying that Italy has become a "supermarket" for cash-rich foreigners.
That raises the prospect of Italian state-owned holding company CDP possibly buying control of Alitalia.
"This would be like a hidden nationalization and that's the worst choice," said Andrea Giuricin, a transport analyst at Milan's Bicocca University. "It would mean going back five years and nationalizing the company's losses."
($1 = 0.7403 euros)
(Additional reporting by Francesca Landini in Milan, Praveen Menon in Dubai and Tim Hepher and Matthias Blamont in Paris; Editing by David Goodman)