June 18, 2007 / 3:33 PM / 12 years ago

Alitalia auction stumbles as finale looms

ROME (Reuters) - Alitalia’s auction risks fizzling out altogether as it enters the final stretch, leaving the Italian government with the bleak prospect of pumping more cash into the unprofitable airline to keep it flying.

Put up for sale by Rome amid much fanfare six months ago in an effort to turn it around, Alitalia’s auction initially attracted 11 bidders before the list was whittled down to three.

One of them has since pulled out, and on Monday speculation grew that Aeroflot (AFLT.MM) might be the next to depart after it complained about the price tag. The Russian airline denies any plans to quit.

Analysts also question the wisdom of potentially selling Alitalia to a state-controlled airline such as Aeroflot when the aim has been to privatise it.

All of that would leave just one bidder in the fray — smaller Italian carrier Air One, whose annual revenues barely match up to the annual losses of its larger rival.

The deadline to submit binding offers for Alitalia, worth about $1.3 billion on the market, is just two weeks away.

“I’m very doubtful about whether we’ll get to the end of this,” said Giacomo Chiorino, who heads fund management company Nuovi Investimenti Sim.

“I don’t think we’re going to sell our state airline to Russia. And (Air One) seem to have doubts themselves on buying something so big and with so many problems.”


Criticism of the auction from Italian politicians came thick and fast after Interfax on Monday cited sources saying that Aeroflot was pulling out, which the airline denied.

Italian senator Dino Tibaldi said the news was deeply worrying for the auction while another lawmaker said Rome should start from scratch with a new auction if Aeroflot did pull out.

“I hope that the government would have enough sense of reality to understand that, if ... the news of this morning is confirmed, it can’t proceed as if nothing happened,” Daniele Capezzone, who heads the parliamentary commission on productive activity, told ANSA.

Alitalia itself last week obliquely referred to what might happen if its auction failed, noting that it knew of no plans by any investors to shut the airline down in such a case.

But it said its operational continuity depended on the outcome of the sale.

As the auction sputters along, the airline’s woes have multiplied. It keeps posting losses and it wrote down the value of its fleet last month, triggering the need for a capital increase under Italian law.

If Alitalia is not able to find a buyer, then the Italian government may end up having to foot the bill once again for the airline’s next cash injection, said Chiorino.

“If the auction doesn’t go to the end, it’s going to be a huge problem because the government doesn’t seem to be ready to intervene once again,” he said. “Public opinion is against them... Most people in Italy are against the state putting more money into it.”

And through it all, Alitalia’s unions have staged crippling strikes and there was more criticism on the auction from one union chief on Monday.

“Alitalia’s privatisation started badly and is ending in the worst fashion,” said Claudio Genovesi, head of the powerful Fit-Cisl union. “The government has to assume the responsibility of direct negotiations as was done by the respective governments of Air France and KLM to safeguard their sector.”

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