Alitalia: last chance for the government, Lufthansa sets its conditions

We now know a little more about the interminable soap opera of the takeover or disappearance, we do not know anymore, of Alitalia.

After the latest twists and turns where the last credible recovery plan collapsed following the withdrawal of some investors, which led the State to grant a new bridging loan to allow the airline to continue operating, we see a little more clearly.

A deadline but the need to end it as soon as possible

The deadline for finding a solution for the Italian airline is now May 31, 2020. A date that means absolutely nothing as it has been postponed many times since 2017 and the beginning of Alitalia’s troubles.

However, at TravelGuys we believe that everything will be done to find a solution before and for different reasons.

  • Nothing says that the airline will last until then with the 400M€ of new money it has just received.
  • Europe is starting to take a very close look at what could start to look like disguised and therefore illegal subsidies.
  • Without public money the airline is no longer viable and it is well known that the reserves of the Italian State are not infinite.
  • Meanwhile, Air Italy, financed by Qatar Airways, is making progress and wants to become the first Italian airline. Any delay for Alitalia is time gained for Air Italy and the Qatari.

So many reasons that push the administrator of the company and the State to find a solution as soon as possible and well before the expiration of this deadline.

Two credible options for Alitalia

To end up with what? The State has 3 options of which only two seem valid to us.

The first one is obviously to find a buyer and even if no one jostles at the door without guarantees it is of course the preferred solution.

The second is nationalization and seems inevitable if private capital does not come to the rescue of the airline.

Indeed, the third one is the pure and simple disappearance of the airline. In our opinion, this is an option that the government absolutely wishes to avoid because of the shock that it would cause from an economic point of view with the disappearance of 12,000 jobs but also from an image point of view with the disappearance of an element of national heritage!

The government is making eyes at Lufthansa

Initially considered reluctantly before it withdrew and came back with a vengeance, the preferred option is now a takeover of Alitalia by Lufthansa. Yes, but…

Lufthansa would not come to do charity work but to make money and make the airline profitable, a field in which it has shown its know-how with Swiss, Brussels Airlines and Austrian.

Concretely speaking the Germans are pragmatic and will not put a toe or a euro in Alitalia as long as this one would not have shown by facts and concrete actions that it has decided to restructure itself because as they said a little while ago, they “are not interested in investing in the current Alitalia but in a new Alitalia”.

It is now up to the airline but, as we know, to the government to make the right decisions in order to dress the bride and make it acceptable for the German group.

And then we start to know more about the German requirements that start to leak in the press.

What are Lufthansa’s demands?

– Reduction of the fleet by 30%.

Sale of the baggage handling and maintenance divisions (which would be redundant with Lufthansa Group services).

In a very diplomatic way, so as not to inflame public opinion and the unions, nor to put the government on the spot, they are not talking about redundancies here, but with the sale of part of the business we are there. And we can’t imagine a 30% reduction in the fleet without a corresponding reduction in staff.

What does Lufthansa offer in exchange?

If Alitalia advances in the requested way, Lufthansa promises to invest initially 160 million Euros in the Italian airline. Not huge, but we must not forget that today, riddled with debts and without cash, Alitalia is an empty shell that flies only thanks to public money, which cannot last any longer.

A bonus gift that will certainly make Roissy and Schiphol cringe, Lufthansa would pay 50 million more if Alitalia decided to leave Skyteam to join Star Alliance.

Our prediction

The Lufthansa solution has always been our preference because of its proven track record in turning around airlines. On the other hand, the Italian government is constrained by popular pressure that would not tolerate either a massive loss of jobs or the disappearance of its beloved national airline.

Our prediction is that :

1°) The Italian government will announce that it will make the necessary concessions by asking for some relaxations to show that it fought to save what could be saved. One can even assume that Lufthansa has already included this room for maneuver in its demands so that the government does not lose face.

2°) Under the pressure of the population and the unions nothing or almost nothing will be done.

3°) Lufthansa will withdraw.

4°) The State will realize that it does not have the means to maintain a structurally loss-making airline, so no nationalization is possible.

5°) Bankruptcy of Alitalia and sale by apartments “for scrap”.

6°) The other airlines, of which, in our opinion, in priority Lufthansa, Easy Jet and Air Italy, help themselves “on the remains of the beast”.

But one can always hope.

Photo : Alitalia plane by MOZCO Mateusz Szymanski via Shutterstock

Bertrand Duperrin
Bertrand Duperrin
Compulsive traveler, present in the French #avgeek community since the late 2000s and passionate about (long) travel since his youth, Bertrand Duperrin co-founded Travel Guys with Olivier Delestre in March 2015.

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