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Government working on bridge loan for Alitalia while it looks for new partners for airline

by Giorgio Santilli

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The Italian government is taking a few extra days to draw up an exit strategy and a stop-gap solution for stricken airliner Alitalia, after employees rejected a rescue plan for the company. Several questions interweave on the negotiating table, all dramatic but with different time horizons.

The first and most urgent question to respond to - together with the selection of 2-3 administrators with Luigi Gubitosi and Enrico Laghi seen as the most likely candidates - is the “business continuity” that the government will be able to guarantee with the nomination of extraordinary administrator/s for a period of which the length will depend on the amount of funds that will be entrusted to the extraordinary administration phase with the decree on the nomination of administrators.

It is certainly the government’s aim to get past the summer and thus avoid an impact on travelers and tourism, but the Marzano law (used for the management of crises in big industrial groups. Ed’s note) allows up to 180 days for the administrator (or administrators) to prepare a “rescue plan” and submit it to the competent ministers. It is highly probable that the government will decide to guarantee “business continuity” until the end of the year.

What costs this implies remains to be seen. The €1 billion that Economic Development Minister Carlo Calenda mentioned before the employees referendum, seemed to be referring to a package of spending that was wider than the simple maintaining of “business continuity” (social shock absorbers, for example).

Resources around €300-400 million are a more likely amount now. It would probably be guaranteed through a state bridge loan or through state-controlled companies like Invitalia or CDP (which would need in any case the UE’s approval) or by private companies supported by state-guaranteed loans that could be privileged in the case of a bankruptcy, receiving a right to first reimbursement.

This 6-months business continuity’s route is what shareholders are calling “orderly liquidation of the company,” which would have the first benefit of avoiding summer confusion, intolerable for any government above all in a pre-electoral phase. It would also have the merit to keep the airline united and operating in the first part of the extraordinary administration, that is until the presentation of the government’s plan.

Then there is the strategic reflection on what to do about Alitalia. The option of a liquidation in the strict sense remains possible in the background (and officially probable). Yesterday Economic Development Minister Carlo Calenda has proposed again a sharp alternative: “sale or liquidation,” so to exclude one more time any possibility of nationalization. The government will work toward avoiding it, though without revealing its card on a hypothetical and organic “Plan B.” Certainly the extraordinary administrators will look for new partners and also the government is working towards it. starting with Infrastructure and Transport Minister Graziano Delrio.

In fact, Delrio does not like the liquidation hypothesis nor the idea of selling the company by pieces, which would benefit both big European big carriers such as Lufthansa and low cost airlines operating in Italy: companies that are certainly interested in putting their hands on Alitalia’s aircrafts, routes and slot.

He doesn’t like this latter idea because it would not ensure business continuity and it would result in any case in the loss of the license. Alitalia would cease to exist and its rivals would take over its market, without having to commit on any specific level of investments and services.

The social cost of such a sale would also be high because according to some estimates only 40-50 per cent of current position could be saved this way. Pilots are among the likely survivors but they would likely to accept losing their current salary levels.

The must therefore is to find new partners and it’s not an easy mission. The challenge here it to find new investors willing to put their money into what has been proved to be a black hole in the last several years, with a company that is losing money at breakneck speed (€600 million), a personnel that rejects a €2 billion rescue plan and in the presence of a strategic positioning that is still incomplete.

For this reason nobody is willing to make forecasts and everyone – after what happened with the referendum – is considering a possible forced liquidation as an all too real possibility.