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Alitalia ends European alliance with Air France-KLM

by Gianni Dragoni

Italian flag airline Alitalia is divorcing from the European alliance with French partner Air France-KLM. The agreement, expiring in January 2017 and already terminated on May 19, 2015 by former Chief Executive Silvano Cassano, will not be renewed and will cease in a few weeks. The negotiations for an extension have failed to produce results. The deal was signed in January 2009 by Roberto Colaninno and Rocco Sabelli, formerly at the helm of Alitalia-Cai, the group of Italian investors called in by former Prime Minister Silvio Berlusconi in 2008 to rescue the troubled company and stop its sale to Air France.

Among the reasons that convinced Alitalia and its Dubai-based majority shareholder Etihad to end the partnership with the French airline is the intention to take back the slots at the Milan Linate airport currently used by Air France and its Dutch partner KLM, and to independently operate the long-haul flights.

Alitalia could increase its flights, and make them available to new partnerships.
The Italian carrier has tried to convince Lufthansa to take part in a capital increase and rescue it from a new collapse. Alitalia has no cash, but the main Italian shareholders (UniCredit, Intesa Sanpaolo, the Benetton family through Atlantia, and Poste Italiane as bondholders) don’t want to disburse cash. Abu Dhabi’s Etihad, which owns 49% in Alitalia, cannot inject fresh capital, because it would control more than 50% in Alitalia, which would lose its EU status and flight rights.

The arrival of a European white knight would allow Etihad to buy the same share as the new investor.

The German company is waiting and see. It does not seem willing to fund a troubled company like Alitalia, which this year will lose more than €400 million, before capital gains and other one-offs.

The end of the European alliance with Air France-KLM however does not allow Alitalia to develop long haul flights in North America, the largest market. The joint venture between Alitalia, Air France, KLM and US carrier Delta remains. Alitalia, like Chairman Luca Cordero di Montezemolo said, can neither fly to new destinations in North America nor add flights without approval from Delta.

The board of Alitalia will meet today to examine the general terms of the industrial plan. However, in a sign of respect for the government, it will not announce the 2,000 layoffs planned by CEO Cramer Ball. The plan will be unveiled only after the constitutional referendum, at the board meeting on December 12.

Today, the board will discuss the proposal reported yesterday by Il Sole 24 Ore-ItalyEurope24 to renegotiate the company’s debt with banks and give some relief to the airline.