September 26, 2008

Rescue Plan is Revived at Alitalia

By Caroline Brothers and Rachel Donadio

Alitalia, the Italian airline, staggered back from the brink of collapse Thursday when the last of its four major unions signed on to a salvage plan, prompting an investor group to revive a euro 1 billion offer that would resuscitate the flag carrier.

The breakthrough came after the government toiled to bring the center-left CGIL union back into the plan to rescue Alitalia, which Prime Minister Silvio Berlusconi of Italy had made a central re- election pledge.

An official with direct knowledge of the situation said that clarification of contract terms for pilots and flight attendants, as well as for seasonal workers, had brought the CGIL into a deal that Alitalia's other three main unions had signed last week. That in turn prompted CAI, the 16-member investor group, to revive the offer it retracted last week. CAI extended its offer to Oct. 15.

"Is Alitalia saved?" the official said, insisting on anonymity because he was not authorized to discuss the matter publicly. "We hope so," the official added, "This could be the first step to saving it."

The initial agreement, which entailed cutting 3,200 jobs from a work force of about 19,000, had provided for a single contract covering all the employees being brought into the salvaged Alitalia. Aviation experts say that a single contract would be unusual in the industry.

Union representatives said that assurances on separate contracts and treatment of seasonal workers had allowed the CGIL union to agree to the plan.

"The agreement on temporary workers was one of the biggest things that convinced us to sign," said Guido Barcucci, a spokesman for the transport workers branch of the CGIL, which negotiated the accords.

Five smaller Alitalia unions, representing pilots and flight attendants, have not yet signed the agreement. They were meeting late Thursday with Gianni Letta, a senior aide to Berlusconi.

A person with direct knowledge of the negotiations, who requested anonymity because of the sensitivity of the talks, said that having the pilots on board was "a key element to CAI's ability to implement its plan."

That person said, however, that the agreement would go ahead whether or not the smaller unions signed.

That leaves CAI - led by Roberto Colaninno, chief executive of Piaggio, the scooter manufacturer - to negotiate with Alitalia's administrator, Augusto Fantozzi, over purchasing the airline's viable assets, injecting euro 1 billion, or $1.46 billion, into the company, and then merging it with Air One, a private Italian carrier. CAI also plans to sign up a foreign airline partner, possibly Air France-KLM or Lufthansa.

"At the start of next week, the shareholders in CAI will have a meeting to capitalize the company," the official said. "Then they can begin negotiating with Fantozzi to buy the assets, to set up the new company, and activate it within the next two to three weeks."

Under a salvage plan developed by the banking group Intesa Sanpaolo, Alitalia's poorly performing assets and debts of about euro 1.2 billion would be split off into a separate entity. Those assets would be sold to reduce the debt, and the balance shouldered by a government that has already injected euro 300 million into the airline to keep it from folding. That aid has been challenged by the European Commission.

In the week since CAI retracted its offer, fears surfaced that oil companies would stop refueling Alitalia's jets, and that aviation authorities would ground its aircraft. But on Thursday, Vito Riggio, head of the Italian civil aviation regulator, said he would not withdraw Alitalia's temporary operating license.

Alitalia has been functioning with a cost base unchanged since the 1970s, leaving it unable to compete with low-cost carriers in an environment of soaring oil prices and faltering demand. Flag carriers around the world have either adapted or disappeared.

"The complexity of Alitalia is its three parties: management, trade unions and the government - that's an unhealthy situation," said Willie Walsh, the chief executive of British Airways, itself once government owned. "It's unhealthy having the government in the mix," Walsh said this week.

Air France-KLM, whose rescue plan for Alitalia was spurned in April, has said that it still wished to be a strategic partner and would take a minority stake in the new entity. "The proposal from before remains current," an Air France-LKM spokeswoman said Thursday.


Rachel Donadio reported from Rome.

Originally published by The New York Times Media Group.

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