Alitalia – from airplanes to post offices

The latest Alitalia news:

A new company has been formed (“Compagnia Aerea Italiana”) which will be where investors put money to buy out the assets of the old “Alitalia”, which will be allowed to fail under a bankruptcy law that the government will craft just for the occasion. In reality, the company will be divvied up into two parts, one of which will include all the juicy bits that are worth something, and the other will include all the debts and expenses and loss-making operations, which will belong to the Italian government. Apparently, time is of the essence, because Alitalia is set to announce something like 400 million euro of losses in the first half of 2008, and once again, they’re running out of money.

A few questions come to mind, and a few more details:

  • Air France’s plan called for 2000 some odd people to be laid off. The new plan talks about 6000 plus, maybe even 7000. Even if the employees are dumped in the toxic company slated for liquidation, it’s unlikely they’ll go meekly. After years of strikes over comparatively trifling matters, who knows what they’ll do.

  • In order to reassure the workers, the government proposed the idea of giving some or most of them jobs with the postal service, the tax collection agency, and the land registry office. This is mind boggling. Not only are Italian taxpayers currently paying through the nose for the poor management and subpar employees in Alitalia, but they will be burdened with paying for these people to do jobs that they are likely completely unqualified for, for years to come, in an organization that already provides horrible service? And this is supposed to be the ‘business friendly, defend the taxpayers’ party in Italian politics?

  • The 300 million Euro that the Italian people loaned Alitalia. Will that be part of the “junk” that gets hived off?

  • The new company apparently needs an international partner to be viable, so the government is attempting to reopen talks with Air France. Wouldn’t it have been simpler and cheaper to have sold the whole thing off earlier this year?

  • Splitting up companies like this is pretty dubious. Compare and contrast with “Chapter 11” bankruptcy:

Sometimes, if the business’s debts exceed its assets, then at the completion of bankruptcy the company’s owners all end up without anything; all their rights and interests are ended and the company’s creditors are left with ownership of the newly reorganized company.

  • In this case, rather than Alitalia’s creditors getting everything, they’re going to get “screwed” (that’s the technical term in corporate finance), and some of Italy’s wealthiest investors are going to get all the nice bits of the company. Anyone want to bet on the valuable assets being auctioned off in a fair and transparent way to the highest bidder? I didn’t think so.

  • Part of the deal is that “Air One”, one of the bigger rivals to Alitalia in the Italian market would become part of the newly created company, decreasing competition, and likely raising prices for consumers on routes where the new company would have a monopoly.

  • The European union grumbled about the 300 million euro loan, but was too slow to really do anything. It’s improbable that any of these latest machinations will be to their liking, although of course it remains to be seen whether they’ll have the courage to put a stop to it.

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