The Alitalia Saga

Forget “The Sopranos”, the Alitalia saga is just as exciting, and despite seeming too strange to believe at times, isn’t fiction.

Alitalia is Italy’s national airline, created in an era when everyone, even tiny Belgium, had their own airline. Today, it teeters on the edge of bankruptcy, as Italy’s politicians shovel wads of cash at it to keep it operational.

I’ve actually flown Alitalia a few times, and while it wasn’t bad, suffice it to say that what with strikes, exorbitant pay packages, and mismanagement, there has only been one year in their history when they’ve turned a profit.

In my view, Alitalia is emblematic of the rot that riddles the Italian economy. Italian taxpayers, including the majority who have never flown, let alone with Alitalia, have paid billions over the years to keep a poorly run company operational, and to employ workers who by most accounts, earn well over market rates for at best satisfactory service. Instead of leaving the company to fail and let others compete to serve the country on their own dime, Alitalia has become a political football; controlled by politicians for their own ends, rather than run as a business with customers to serve and to make a profit. My sincere hope is that sooner rather than later it is finally put down. Perhaps, were Italy lucky, it might even mark a turning point in the efforts to clean up and liberalize the stagnant economy, but that might be wishful thinking on my part.

The past year of its history is illustrative:

In 2007, the center-left Prodi government decided to sell off the government’s 49% stake in the company, completing its privatization, but imposed so many conditions on the sale that the only serious offer was from Air France-KLM. Talks between Air France and Alitalia’s unions were under way in the spring of 2008, when Prodi’s government fell apart and new elections were called (due to one of his coalition’s allies being incensed at being investigated for corruption). Berlusconi, supposedly the market friendly business candidate, then proceeded to stick his nose into the company’s business even more than the previous government had: he promised that there was an “Italian” solution waiting in the wings, that would make all Alitalia’s problems go away. Aside from absurdity of caring about the nationality of the company’s purchasers, the real problem with Berlusconi’s big words was that, paradoxically, they put some strength into the unions negotiating with Air France. No longer with their backs to the wall, and facing the huge cuts necessary to bring the company into some semblance of profitability, they had an out!

Jean-Cyrille Spinetta, the head of Air France-KLM, after weeks of fruitless negotiations, apparently literally walked out of the talks, ending the only serious negotiations to sell the company, which continued, of course, to bleed money, in part because of poor financial management regarding the rapidly rising price of oil, and in part due to the same old problems of inefficiency.

But what of Berlusconi’s “Italian coalition”? Well, it turns out that he didn’t actually name names or have much of anything concrete lined up beyond a bunch of wealthy businessmen who, most likely to try and get in good with the new government, most likely gave him some vague assurances along the lines of “if you get all those other guys to go along, I might be able to as well”. In the meantime, Berlusconi had won the election, and Alitalia was staring at running out of money in the next few months.

With this bleak situation, more judicious governments might have simply left things alone, trying as best as possible to provide some aid to the ordinary workers losing their jobs as the company went into a tailspin. This, however, being Italy, and Silvio Berlusconi’s honor on the line, what else to do but take 300 million Euros of government money (not his own, mind you), 5 Euros from every man, woman and child in Italy, and give it as a “loan” at “market rates” to Alitalia. Clearly, this is a farse, as true market rates for a loan to a company that has never turned a profit would be quite high, to price in the risk of never seeing the money again.

Furthermore, the European Union has rules against state aid, which the “loan” clearly violates, since in reality it’s unlikely that the government will get its money back, and it was not done at true market rates. Were the government to have simply given that cash to the ex-employees of a bankrupt Alitalia, there would be enough for nearly 25,000 Euro a person, hardly money to sneeze at. Instead, it’s the only thing between Alitalia, and a crash landing that would open up the Italian marketplace to other, better run companies. Naturally, there is still no word, as of late July 2008, of the details of Berlusconi’s “Italian coalition”, the stock has been suspended on the Milan stock exchange, rumors of impending bankruptcy continue to swirl, and in reality the government has been busy with other things; mostly passing laws getting Berlusconi off the hook in various ongoing trials.

Because of its interest in opening up new Italian routes, one of the chief opponents of the “loan” is Ryanair, a low cost European airline, which is famous for putting air travel within the reach of just about anyone. Incensed at the duplicitous behavior of Italy’s politicians, and lack of progress at resolving the situation in one way or another, they started running an entertaining ad on their web site today:

Ryanair Alitalia

which needs some explaining. The man “flipping the bird” is Umberto Bossi, one of Berlusconi’s allies. The leader of the “northern separatist” party, he was caught flipping off the national anthem of Italy (I wonder what would happen to a US politician doing that!), and the picture made the rounds of all the newspapers. In Ryanair’s ad, it’s used along with the text: “Minister Bossi to Italian passengers”, “the government”, “is supporting Alitalia’s high prices”, “is supporting Alitalia’s frequent strikes”, “doesn’t care about Italian passengers”.

Much as I’d like to see the whole thing wind up with Alitalia bankrupt, following the twists and turns of the whole affair has taken on a sort of morbid fascination. I’ll be sure to post updates as the story develops.

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