Up to 2,000 staff cuts. Less medium-range airplanes, with plans to gradually ground between 15 and 20 Airbus planes from the A320 family. Reduction in ground support to bring the cost structure closer to that of low cost airlines. For short and medium haul flights up to three hours, the already spartan refreshment service will no longer be completely free. With a few exceptions, in economy class you will have to pay for sandwiches, snacks and beverages, following the “buy on board” model that will begin in January on British Airways flights in Europe, a model that copies the low-cost format.
These are the main changes being evaluated by top executives of airliner Alitalia to try to get the company’s accounts in order, sources close to the matter told ItalyEurope24.
The company has not officially confirmed the plans. No decisions have been taken yet. The board meeting to agree the plan has been scheduled for November 23.
During this phase the company will be supported by Etihad, which holds a 49% stake in Alitalia. It will take on €216 million in financial debt to strengthen the company’s capital base and postpone the need for a recapitalization. Etihad will not transfer money but will underwrite so-called “participatory financial instruments.” These shares, considered “quasi equity,” will not increase Etihad’s stake in Alitalia, which cannot exceed 49% otherwise Alitalia, according to European Union norms, will lose its traffic rights. In exchange for this commitment, Etihad will be privileged in the distribution of future earnings if Alitalia starts to make a profit, which is not expected before 2021.
To develop the plan in the medium-term, new funds are needed to inject in the company to support investments in wide-body aircraft. Alitalia has 24 and Chief Executive Cramer Ball says 20 more will be needed in three years. Italian shareholders, who own 51% of Alitalia through Cai-Midco and include UniCredit and Intesa Sanpaolo, have said no.
Top executives and shareholders in Alitalia are exploring other routes to find European partners prepared to offer funds. Contacts have been made with German airliner Lufthansa, and talks are currently in the preliminary phase. The Germans are listening, but for now they are not making any commitments. If a European investor was available to supply extra capital, Etihad could also add funds totaling the same amount. This is the most critical part of the plan at the moment, considering the negative financial results of the company.
According to authoritative sources, Alitalia is set to close this year with a net loss estimated to reach at least €400 million, before any extraordinary items and capital gains. The results are much worse than expectations made in the plan two years ago, which was a condition for Etihad’s entry. The plan forecasted an operating loss of €50 million for this year and a net loss of €44 million, while for 2017 a net profit of €46 million was expected. That objective is no longer realistic in light of the performance of the company, which reported a net loss of €199.1 million in 2015, the year in which global air travel recorded the highest aggregate net profit in history: $35.3 billion according to figures from the International Air Transport Association.
Next year, Alitalia expects to post another loss, estimated to reach at least €500 million. According to sector reports, the company is not expected to turn a profit before 2021. But the forecasts for the results are linked to the interventions that will be done to cut costs, the expectations for an increase in revenues, and the design of a new network.
Various drafts of the industrial plan have been made. The version on which there appears to be some consensus includes a reduction in staff of up to 2,000 workers both on the ground and among crew, which is equivalent to about 16% of staff at the end of 2015 (12,428 employees). The total cost of personnel in 2015 was €613 million.
This cut does not include further lay-offs that will come from the grounding of the planes. Alitalia has an operating fleet consisting of 122 planes, including 78 medium-range Airbus aircraft. According to Chief Executive Cramer Ball and Etihad CEO James Hogan, that is too much and 15-20 less would be enough. Every aircraft that is grounded is expected to lead to the axing of a further 30-40 jobs, including pilots and flight attendants.
© ITALY EUROPE 24 - ALL RIGHTS RESERVED