Italy has been pumping cash into perennial loss-maker Alitalia for years, despite European Union rules against subsidizing a national carrier. Other airlines have burned through capital with ownership stakes in the airline – Air France and Etihad – but they’ve been burned and other carriers were gun shy to take over given losses of 2 million euros a day even before things began going down hill for the entire aviation industry.
The Italian government wouldn’t stand up to the airline’s unions, and without lowering costs no one was willing to come to a deal to take over the failed airline.
Now potential suitors, which had included Delta Air Lines, are no doubt grateful the process had dragged on and they didn’t do a deal. Qatar must be glad it didn’t find a way to save Air Italy, and allowed it to shut down instead.
There’s no longer a prospect to do any deal. The Italian government is instead nationalizing the airline in June. They plan to create a new company to transfer Alitalia’s assets into and shrink the fleet by 23 planes (earlier speculation had their 113 aircraft shrinking by 30). In all likelihood the current coronavirus crisis means the European Union won’t push back. Indeed, other countries are expected to provide subsidies to their major airlines as well.
Copyright: jvdwolf / 123RF Stock Photo
There are two key takeaways:
- The government claims they’ll finally make Alitalia profitable, because as a new company they start ‘on equal footing’ with other European airlines. This is doubtful given the strength of the airline’s unions. If this ever comes to pass the government would consider re-privatizing the carrier.
- They are considering leaving SkyTeeam for “a possible new international alliance…once an existing code-sharing agreement with U.S. carrier Delta expires on May 24.” Is this just cheap talk in hopes of gaining negotiating leverage? The current pandemic makes it unlikely Delta has much to offer in the near-term, even if Italy’s government can get Delta’s attention. Then again it could also be spite for Delta walking away from a role in acquiring the airline.
The Italian government, though, should allow the airline to fail. That’s the only way to hit the reset button on costs and work rules that make it terribly uncompetitive and loss-making even in the best of times in the aviation industry.