Air France buys 25% of Alitalia

Air France announced that it has agreed to pay 25% of stake in Italy flag carrier Alitalia for $432 million. CAI, the current owners of Alitalia seem pleased on selection of Air France – KLM over Lufthansa that had bid on the stake too.

From Mizozo.com –

Alitalia declared bankruptcy on Aug 29th 2008 and has been subjected
to various suiters like Lufthansa, etc. The future of the airlines was
in grave danger esp. due to it past financial records and current labor
problems. CAI decided to combine Alitalia with Air One and get a
minority foriegn partner for which Lufthansa and Air France showed
interest.

Lufthansa’s Bid

Officials
from Lufthansa complained that they were not provided the required
information to provide a firm bid despite the fact that they were the
earlier of the suitors for buying the airlines.

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Alitalia – What is going on?

Alitalia (or Linee Aeree Italiane S.p.A), the flag carrier airline of Italy is going thorugh difficult times but this is not new for the airline with the exception that under the EU rules, the government cannot inject cash into the failing airline like they had been doing before.

The airline had been attributing financial woes due to “pilots and crew members and labour problems and government and political interference with the attempts to solve them“

Disclaimer: A lot of the facts are from wikipedia article.

Financial Situation in the Past –

• Since 1946 (established on September 16th 1946) only one year of profit in 1998.
• Between 1999-2008 – A total loss of 3.7 billion Euros
• Government help/loan – 1.5 billion euros in 1998, 1.432 billion euros in 2002, 400 million euros loan in 2004 and more in 2005 (4.9 billion investment since 1998)
• Current Government help/loan – 300 million euros emergency loan to stave the airline’s collapse
• 2006 onwards – “The government could in 2006 no longer offer support to the failing
  airline since it has been forbidden by the European Union to inject new
  capital“. Hence lookout for a private entity to take over the airline.
• Expectations in 2008 – 600 million euro loss (including 400 million euros on increased fuel cost)

Key Recent Events –

• March 17th 2008 – Italian government approved takeover bid from Air France-KLM
• April 2nd 2008 – Air France – KLM withdrew the bid after failure of negotiations with the union.
• August 29th 2008 – The airline filed for bankruptcy protection with restructuring the airline (like Chapter 11)
• Current fuel situation – The airline recently announced that their fuel stock will run out on September 14th 2008, since due to the current financial situtations no-one seems to be selling them any fuel.
• Current – CAI (Compagnia Aerea Italiana), the Italian investment group is willing to spend 1 billion euros to “rescue and relaunch the airlines”

Current Scenario (with CAI, Compagnia Aerea Italiana) (from here and here)-

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Four Airlines fined for Price-Fixing

Four airlines have pleaded guilty and agreed to pay a total of $504 million on charges that they conspired to fix prices for air cargo.

Facts –

• Air France and KLM Royal Dutch Airlines (Air France-KLM) to pay $350 million (Second largest fine criminal antitrust investigation by Department of Justice)
  
• Cathay Pacific Airways to pay $60 million
• Martinair to pay $42 million
• SAS Cargo to pay $52 million

From Washington Post –

“The guilty pleas are the latest to arise from a multinational antitrust
investigation into the air transportation industry by investigators on
both sides of the Atlantic. In yesterday’s filing, the government
accused the carriers of trying to artificially set prices for base
cargo rates as well as fuel and other surcharges in e-mails and during
meetings in the United States and Europe.”
“O’Connor said the conspiracy, which began as early as 2001 and
continued through 2006, affected billions of dollars in shipments of
consumer goods, including electronics, clothing, produce and medicines.”

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Air France-KLM pull out of the Alitalia due to Failed Union Agreement

On April 2nd 2008, three hours before the deadline, Air France-KLM ended its efforts to acquire Alitalia due to failure to reach an accord with Alitalia’s trade unions. AF-KLM had submitted its final offer three weeks ago which was contingent on trade unions agreement, arguing that there can be no profitability without union’s support.

Next step – Alitalia might go bankrupt! Alitalia is currently losing $1.6 million a day. Alitalia had earlier said, it needed 750 mil Euros by mid-year to stay in business.

Air France’s bid has asked for following –

• 2100 Job cuts
• Elimination of Alitalia’s cargo business
• Scaling back the maintenance unit
• Eliminating some medium range jet before adding long-range planes.

For more read this and this.

Facts about Alitalia –

• It is the flag carrier of Italy
• Established in – September 16th 1946
• Headquartered in – Rome
• Destinations – Domestic – 28 and International – 74
• Hub – Leonardo Da Vinci International Airport,Rome (April 2008, downgraded Malpensa International Airport, Milan from a hub to to a focus city
  
• Misc – The airline has lost money for years due to labor problems and government and political interferences.
• Misc – The airline has reported only one year of profit in 1998, since 1946!!!!

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