Alitalia unlikely to be in for long haul without Air France: KLM

Wed Sep 25, 2013 3:51pm EDT
 
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By Agnieszka Flak

MILAN (Reuters) - Five years after Alitalia was rescued from bankruptcy, the options for the troubled Italian airline appear to be few: convince top shareholder Air France-KLM AIRF.PA to support its new strategy or shut up shop.

Since being taken private by a consortium of Italian investors in early 2009, Alitalia has accumulated net losses of more than 840 million euros ($1.1 billion), debt of about 1 billion euros and is fast running out of cash.

An ambitious plan to become a strong regional player failed in the face of aggressive competition from low-cost carriers Ryanair RYA.I and easyJet EZJ.L and from high-speed trains on its once-lucrative Milan-Rome route.

Alitalia's new CEO, turnaround specialist Gabriele Del Torchio, has already outlined a new plan to focus on the more lucrative long-haul market, but he desperately needs cash to buy the larger aircraft needed for inter-continental flights. The company says the new strategy will help it to break even in 2015 and return to profit in 2016.

At a board meeting on Thursday, Del Torchio is expected to seek approval for a 200 million euro capital increase, possibly underwritten by Air France-KLM, plus the same sum in fresh borrowing, sources close to the matter said.

Italy's government, meanwhile, is banking on Air France-KLM to make a cash investment and increase the 25 percent stake it bought in 2009, possibly taking control of the company.

Analysts expect such commitment to come with conditions, with the Franco-Dutch group unlikely to want to take on Alitalia's debt and support all of Del Torchio's long-haul ambitions, which could clash with its own.

Air France-KLM may want to follow the example of Lufthansa LHAG.DE, which uses Vienna and Zurich to feed its long-haul flights out of its Frankfurt and Munich hubs, analysts said. Alitalia could also be used for point-to-point routes bypassing Air France-KLM's two main hubs, possibly linking Rome with the east coast of the United States and parts of Africa.   Continued...

 
An Alitalia plane passes an Air France plane on the tarmac of Charles de Gaulles International Airport in Roissy near Paris, January 8, 2013. REUTERS/Charles Platiau