Alitalia job cuts plan unlikely to win Air France rescue

Tue Nov 12, 2013 3:48pm EST
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By Agnieszka Flak and Cyril Altmeyer

MILAN/PARIS (Reuters) - Cash-strapped Italian airline Alitalia is planning the first mass firing since its it was privatized in 2008 to cut costs, but a source said it was unlikely to go far enough to persuade top shareholder Air France-KLM to rescue it in a cash call.

Alitalia's Chief Executive Gabriele del Torchio, a turnaround specialist, is expected to unveil his plan at a board meeting scheduled for 1700 GMT (10:00 AM EST) on Wednesday. Several sources said it may include up to 2,000 lay-offs as well as salary cuts to make Alitalia more efficient and profitable.

That would leave shareholders just one day to decide whether the plan merits their participation in a 300 million euro ($400 million) cash call to keep the Italian carrier aloft.

Air France-KLM (AIRF.PA: Quote), which has already written off the value of its 25 percent stake to zero, says it will inject more cash only under "very strict conditions".

A source close to the matter said the likelihood of the Franco-Dutch group taking part in the cash call was "very low", because it sees Alitalia's debt - 813 million euros at the end of September - as too high. The airline's future was in the hands of banks who needed to cut its debt, the source said.

"The industrial plan (including 2,000 job cuts) is heading in the right direction, but the financial plan doesn't guarantee Alitalia's medium-term future," the source said.

Air France-KLM saw Alitalia's goal of breaking even at the operating level in 2014 as unrealistic, the source added on condition of anonymity. "The banks hold the key to Alitalia's future. They should agree to cancel part of the debt."

Air France-KLM and other investors have until Friday to consider the strategy, an update to an initial July plan by Del Torchio, and decide whether they want to subscribe to the capital hike.   Continued...