From New York Times
By ERIC SYLVERS
Published: November 24, 2006
MILAN, Nov. 23 — Air France-KLM, Europe’s biggest airline, said Thursday that it had begun talks that could eventually lead to the takeover of Alitalia, the Italian carrier.
Alitalia, which is half-owned by the Italian government, is actively looking for a partner. But analysts see any deal as uncertain as long as the company continues to lose money. The stock of both companies fell in Europe.
Alitalia has not made an operating profit since 1998. Before exploratory talks can move forward, the airline must become financially stable, said Jean-Cyril Spinetta, chief executive of Air France-KLM.
Alitalia had a pretax loss of 275 million euros ($354 million) in the first nine months of the year, but the company has forecast that it will be profitable in the fourth quarter.
In recent years, Alitalia has continued to be affected by labor unrest and an inability to meet the challenge of rising fuel prices and competition from low-cost airlines like EasyJet and Ryanair.
“Alitalia is besieged by inertia, labor strikes and increased competition from new entrants and low-cost airlines,” two Citigroup analysts wrote in a recent report.
Meanwhile, Air France has managed to reach accords with unions, allowing the company to grow and successfully integrate KLM.
“While the rest of the sector recovers, Alitalia’s losses are increasing, the report said. “We do not believe that this situation will reverse in the short term or that Alitalia will be acquired by Air France.”
Analysts have criticized Alitalia for opting to keep hubs in both Milan and Rome, and it has lost ground on intercontinental flights to companies with bigger European hubs.
A deal between Air France and Alitalia would have to receive the approval of Alitalia’s unions.
“We have nothing against a deal with Air France, but Alitalia is in a difficult financial position right now and to go into an alliance in this condition would mean accepting tough conditions from the French,” said Antonio Amoroso, the coordinator of Confederazione Unitaria di Base, a union that represents about 700 Alitalia workers. “We don’t want a situation where the Italian government bends to every French demand.”
In previous discussions between the two airlines, Mr. Amoroso said, Air France had asked as part of an eventual deal that Alitalia stop some flights and that some intercontinental flights be shifted to Paris and Amsterdam.
The two companies already have a commercial accord through the Sky Team Alliance, which also includes Delta Air Lines and Northwest Airlines.
The French president Jacques Chirac and the Italian prime minister Romano Prodi were scheduled to meet in Italy on Friday and there were indications that they would discuss the two national carriers.
Mr. Prodi has already indicated that he has reservations about a deal. “I have always supported contacts between the two groups,” he said in an interview Thursday in Le Figaro, the French daily. “Now, I have a lot of doubts. I would like to know Air France’s real intentions. Does it want to create a big European transport group in which Italy would also have a place, or simply grab the Italian air transport market, which is large and very lucrative?”
Alitalia has teetered near bankruptcy several times in the last few years. The government has come to the rescue each time, but that might not always be the case.
Mr. Prodi in October said that Alitalia was “out of control,” a comment that some industry observers read as an indication that the government might be willing to let the company go bankrupt. The government has said that it will make a decision on the airline’s future by the end of January.
Nicola Clark contributed reporting from Paris.
Sign In
November 24, 2006 at 6:17 pm