September 21, 2008

Failure of Alitalia Deal Embarrasses Berlusconi

By Stephen Brown

"I love Italy, I fly Alitalia" was the slogan Silvio Berlusconi, the Italian prime minister, coined after his re-election.

Months later, a rescue bid for the airline has failed and he faces the prospect of liquidating a symbol of national pride, dismissing 19,000 workers and seeing Alitalia's landing slots being taken by foreign companies.

Berlusconi is riding high in opinion polls, but the failure of an important plank in his election campaign could undermine that, especially because of his role in undermining a previous offer for the airline by Air France-KLM.

"The government played up their solution in the election campaign, so they certainly can't escape the problem now," said one Rome resident, Andrea Ficaria.

Berlusconi had made saving Alitalia one of his first two priorities as prime minister, along with solving the Naples trash crisis, something he achieved in July.

Winning wide support in Italy - and criticism from civil rights campaigners - for firm action against crime and illegal immigrants, Berlusconi's popularity rating rose to 60 percent.

Using his formidable contacts, Berlusconi, a media entrepreneur, persuaded 16 companies to chip in euro 1 billion, or $1.4 billion, to remake Alitalia under "Plan Phoenix," which came close to success.

But the plan collapsed in the past week when some trade unions, including pilots, refused to accept job losses. The airline will now probably be made bankrupt and its planes grounded as early as Monday.

"Italy's airline market is very attractive and will probably end up with a foreign company, which will be interested in the market and not in serving the country," said Gian Maria Gros Pietro, chairman of one company involved in the failed rescue consortium.

La Stampa newspaper called the episode "the first defeat for the Berlusconi government and a victory - we'll see how much of one - for the opposition and some unions."

Saving Alitalia from the liquidators was never going to be easy. It has not had a profit since 1999 and its unions are notoriously combative and rarely agree even among themselves.

As the blame game began, one union that favored the deal accused others of playing Russian roulette while Berlusconi's ministers tried to pin the blame on the center-left opposition, which it said had manipulated its trade union allies.

"We don't have the option of using the unions, unlike you," the welfare minister, Maurizio Sacconi, told the senior Democratic Party politician, Piero Fassino, in a television debate show.

Berlusconi could still find some face-saving solution before the aviation authorities decide Monday about grounding Alitalia. Some newspapers speculated that he could go as far as nationalizing it again.

But ministers categorically ruled that out, especially since Italy has already been disciplined by the European Commission for a euro 300 million emergency government loan to the airline.

La Repubblica newspaper, which always takes a dim view of the Berlusconi government, said misguided patriotism and the Italian tradition of business currying favor with politicians had gotten in the way of hardheaded business.

"We should replace heroism with realism and 'Italianness' with Europe," Ezio Mauro, the editor, wrote on the front page.

Originally published by Reuters.

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