September 15, 2008

Some Progress in Talks to Keep Alitalia Flying

By Caroline Brothers

The Italian government was making some progress Sunday in brokering a deal that would stave off bankruptcy at Alitalia, the Italian flag carrier, after fears arose that the airline might have to ground flights because suppliers would cut off its jet fuel.

Signs of flexibility on the part of Alitalia's pilots also indicated that a deal could yet be reached that would stop Augusto Fantozzi, the airline's administrator, from proceeding to liquidate its assets.

"We are not there yet, but things are looking a lot brighter today than they did on Saturday," said a person with direct knowledge of the discussions, who spoke on condition of anonymity because of the sensitive nature of the talks. "We are cautiously optimistic, but this is going to go long into the evening."

The person said that the pilots' union, which alongside representatives of the airline's cabin crews had been unable to reach agreement last week with an investor group known as CAI, seemed prepared to make some vital concessions.

"The pilots are looking more flexible on working practices, and in return they have been given a guarantee that they will be given the status of managers in the new contract, which they didn't have before," the person said.

But the clock was ticking as worries surfaced that suppliers could stop refueling Alitalia jets - as happened to Swissair when it ran out of cash and suspended its flights in October 2001.

"There are difficulties deriving from the provision of jet fuel that could put some flights at risk," Fantozzi said in a statement issued Saturday by Alitalia.

That prompted a warning from the Italian civil aviation authority, ENAC, that the airline could lose its operating license "if a solution is not found soon that guarantees the continuing of the carrier's operations."

The person with direct knowledge of the discussions, however, said Sunday that ENI, the Italian state-controlled oil company, had withdrawn a threat to close its pumps to the airline. "The government asked it not to do that," the person said.

On Friday, Compania Aerea Italiana, or CAI, a 16-member investor group that is proposing to rescue Alitalia, walked out of negotiations saying it saw no possibility of agreement, and halted due diligence procedures.

While an accord with the pilots' union would be a significant step toward getting CAI back at the table, other sticking points remain. "The difficulty has been getting all the unions to speak with one voice," the person said.

Raffaele Bonanni of the CISL national labor confederation in Italy was quoted by The Associated Press as saying on Sunday that a deal would depend on "the realism and flexibility" shown by all sides.

Giuseppe Caronia, head of the UILT union, said, "We are trying to get a solution to this saga, and there are still many obstacles, but the climate is different and there is the awareness that there is no alternative to the deal," Reuters reported.

Alitalia's nine unions have balked at the specter of job cuts and salary reductions that some reports put as high as 40 percent depending on how fringe benefits, like a service picking up pilots from home before a flight, are calculated.

The person with direct knowledge of the talks said that CAI had initially proposed salary cuts of 25 percent. "As a sign of flexibility shown before the walk out, it was taken down to 20 percent last week," he said.

Union representatives met at the weekend in the offices of Silvio Berlusconi, the Italian prime minister, who raised the political stakes by making an Italian solution for Alitalia a central pledge of his campaign this spring.

Led by Roberto Colaninno whose holding company controls the scooter manufacturer Piaggio, CAI for its part met government representatives at the Italian Labor Ministry on Sunday.

CAI, which plans to inject euro 1 billion, or $1.42 billion, into the struggling carrier, wishes to acquire Alitalia's viable assets and merge them with Air One, a smaller private Italian airline, while cutting some 5,000 jobs of a work force estimated at 20,000. It also plans to seek a partner among the big European airlines.

The administrator would sell Alitalia's cargo and maintenance divisions to shrink a debt of some euro 1.2 billion.

Emboldened by remarks by Berlusconi, Alitalia's unions in April torpedoed a plan to sell the airline to Air France-KLM. CAI's rescue plan is now the only one on the table.

Both sides would return to negotiations with Fantozzi and government representatives if concessions made a final deal possible.

Fantozzi can hold off liquidating Alitalia only as long as a rescue plan remains pending for an airline that is still alive thanks only to a euro 300 million capital injection by Rome that European Union regulators have challenged as possibly illegal state aid.

Originally published by The New York Times Media Group.

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