September 15, 2008

Italy Tries to Avoid Alitalia Collapse

By Robin Pomeroy

The Italian government scrambled Sunday to save Alitalia from collapse, with the airline warning that it might be required to cancel flights Monday because it could not secure fuel supplies.

Emerging briefly from emergency talks with labor unions, Labor Minister Maurizio Sacconi answered "yes" when asked if he was optimistic about the possibility of reaching a last-minute rescue deal.

Unions had rejected an Italian consortium's offer to buy profitable parts of the airline, cut jobs and salaries and start a slimmed-down regional carrier. But with liquidation the only obvious alternative, they appealed for a compromise.

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

Italy's civil aviation authority said Saturday that Alitalia's operating license was at risk after the airline confirmed media reports that it was having trouble buying jet fuel from wary suppliers. It is operating under a bankruptcy commissioner who has said the only alternative to the rescue plan is liquidation, a procedure he has held back from starting while the talks continue.

The emergency talks at the office of Prime Minister Silvio Berlusconi ran late into Saturday without breaking the deadlock. Letting Alitalia collapse would be a huge political blow for Berlusconi, who promised voters he would use his business contacts to find an Italian buyer. Pope Benedict XVI, who flew to France on a chartered Alitalia flight Friday, said he was praying for the airline.

With only hours remaining to agree on a rescue plan, the stakes were high for all concerned. One leading newspaper, La Stampa, said there was a "firm belief that a collapse would be a serious blow not only for the government but also for unions, workers, employers and, in fact, the entire country."

The investor group CAI has said publicly that it would not offer any more concessions with its offer. But another newspaper, La Repubblica, reported that its chief executive, Roberto Colaninno, had improved the offer on salaries, reducing pay cuts to 20 percent, from about 25 percent previously.

Once a symbol of Italy's postwar boom, Alitalia has for years suffered from political interference, labor disputes, financial woes and, most recently, the soaring fuel costs that are weighing on airlines around the world.

In April, Alitalia's unions sank a deal, agreed to under the previous, center-left government, to sell the airline to Air France- KLM, a deal that Berlusconi, then in opposition, said he would block if he came into power.

The state holds a 49.9 percent stake in the airline, and public trading in its shares has been suspended since June. Alitalia has not been profitable since 1999 and had nearly euro 1.2 billion, or $1.7 billion, of debt as of July.

In Europe, the industry's woes are by no means limited to Alitalia. XL Leisure group of Britain, one of the country's largest package holiday operators, grounded all flights Friday after going into bankruptcy, leaving 50,000 of its customers stranded abroad.

On Sunday, the Civil Aviation Authority in Britain said another tour operator had gone bankrupt. K & S Travel ceased operating Saturday, said James Hotson, a press officer for the regulator. But its customers' return trips are covered by a bond, he said. The group specialized in travel to Turkey.

Two weeks ago, the Canada-based budget carrier Zoom, which offered service to Britain, shut down. Silverjet, a business-class carrier based at Luton north of London, ceased operations in June.

Originally published by Reuters.

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