Italian Government Asks Delta To Do The Right Thing

The Italian government is begging U.S. major Delta Air Lines, Inc. DAL to up the proposed acquisition of a 10% stake in Alitalia for $100 million to at least 15%, according to a report in Italian media.

Loss-making Alitalia has been seeking new investors for more than two years after going into administration in May 2017 after workers rejected a plan to cut jobs and salaries. Successive Italian governments have had to balance the carrier's massive losses with the need to placate a heavily unionized workforce.

Delta appears to not be keen on upsizing its offer. Delta's main interest in Alitalia centers around the profitable U.S. and Canadian routes that account for more than one-third of the Italian carrier's revenue. Delta and Alitalia are members of the 19-member SkyTeam alliance that also includes major players Air France-KLM, AeroMexico, China Airlines and Korean Air.

Between January and August of this year, Alitalia reported 2% growth in passenger revenues, compared to the same eight months of 2018. In the first eight months of 2019, the long-haul sector saw an increase in revenues of 4.7% and in passengers of 4%. Alitalia has no dedicated freighter aircraft, but uses the belly-hold capacity of passenger aircraft for cargo operations.

As part of a rescue plan, Delta would become a cornerstone investor, along with Italian railway group Ferrovie dello Stato (FS) with a 40% stake. Italian holding company Atlantia, active in the infrastructure sector including motorways, airport infrastructure and transport services, also has been linked to a proposed investment in Altalia with a 30% stake. 

Controlled by the Benetton family, Atlantia manages Fiumicino and Ciampino airports in Rome and the three airports of Nice, Cannes-Mandelieu and Saint Tropez in France. Atlantia may have been strong-armed by the Italian government into taking a piece of the Alitalia action after coming under heavy fire from the government after a bridge in Genoa run by the company collapsed in 2018, resulting in many deaths.

The Italian treasury also would invest in Alitalia, which recently has been crowing about being the second most punctual airline in Europe between January and August. The combined investment in a newly launched Alitalia would be capitalized at €1 billion.  

Ireland-based low-cost carrier Ryanair expressed interest in Alitalia shortly after it entered administration, but quickly dropped the idea. German carrier Lufthansa initially had expressed interest in taking part in the rescue, predicated on massive job cuts and the absence of any Italian government involvement. And U.K.-based low-cost carrier EasyJet announced on March 18 a decision to withdraw from negotiations to explore options for the future operation of Alitalia.

The Italian government approached state-controlled shipbuilder Fincantieri in May suggesting a possible minority stake buy-in. Managing Director Giuseppe Bono on a May 10 call with equity analysts stressed that Fincantieri would make an investment in Alitalia "when we start to build spaceships — but for the moment we make ships."

Privatized in 2008 and losing an estimated €1.3 million ($1.4 million) per day, the Italian flag carrier has not turned a profit since 2002, losing €343 million on €3.1 billion of revenue in 2018 alone.

Alitalia unions have steadfastly stood in the way of selling the carrier. In 2008, Air France-KLM walked away from a planned takeover of Alitalia after talks with unions broke down.

Following the termination of negotiations, Alitalia Chairman Maurizio Prato resigned, charging, "This company is cursed. Only an exorcist can save it."

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