Translated material
Alitalia purchased
Loss-making Italian airline sold to Franco-Dutch Air France-KLM
The board of directors of the Italian airline Alitalia yesterday voted in favor of a proposal to sell the state stake in the national air carrier to the French-Dutch concern Air France-KLM. The deal must still be approved by the Italian government. In addition, the buyer is obliged to reach an understanding with the Alitalia trade unions and obtain approval from the stock market regulators in Italy and the European Union. Air France-KLM has promised to maintain the brand of the Italian national carrier within the group. It is expected that the transaction could be completed by mid-2008.However, the 49.9 percent stake in Alitalia, which the Italian government has been trying unsuccessfully to sell for several years, is now closer to sale than ever before. Last year it was put up for international competition, but the conditions put forward by the government scared away potential buyers, among whom was the Russian Aeroflot. Now Air France-KLM has offered much less for Alitalia than Italy expected to receive in the competition.
The Air France-KLM proposals, accepted by Alitalia's board of directors, stipulate that the Franco-Dutch concern (already the largest airline in Europe) will acquire Alitalia securities at a rate of 0.1 euros per share. That's less than one-fifth of their current market value. In addition, payment will be made not in money, but in shares of the concern itself, in the ratio of one Air France-KLM share for 160 Alitalia shares. The buyer will contribute 1 billion euros in real money to replenish the working capital of the Italian airline and another 608 million euros to repay the bonds it issued. The total debt of Alitalia, which has been operating at a loss for five years in a row, is now estimated at 1.2 billion euros.
During 2006 and 2007, the Italian government tried to sell its stake in Alitalia through a tender, the terms and participants of which changed along the way. Among the contenders was the Russian Aeroflot. Three participants were admitted to the final stage of the competition in May 2007: a consortium consisting of American investment companies Matlin Patterson Global Advisers LLC and Texas Pacific Group, a consortium formed by Aeroflot with the Italian bank Unicredit, as well as AP Holding SpA, headed by the chairman of the board of directors the second largest Italian airline Air One Carlo Toto. As a result, none of the competition participants submitted a final application. The expectations of the Italian government, which expected to earn 3 billion euros for the shares, seemed exaggerated to potential buyers: one and a half of them to the treasury, and another one and a half to pay off Alitalia's debts. Aeroflot withdrew from the competition last summer (see Vremya Novostey, June 28, 2007) .
Alitalia operates approximately 180 aircraft (in terms of fleet size, it is among the 20 largest airlines in the world). At the same time, the company's fleet is quite new by world standards. The average age of its aircraft is 13.5 years. From two hubs (Rome and Milan), they serve hundreds of destinations in Italy and beyond. The company is part of the international alliance Sky Team, of which Air France-KLM and Aeroflot are also members. True, along with all these advantages of Alitalia, the new owners will also have to accept its main drawback - its difficult financial situation. During the 1990s and early 2000s, the company was chronically unprofitable and survived on periodic government subsidies until such were prohibited by EU regulations. Regular staff strikes became the scourge of the company. According to some estimates, its losses now amount to 1 million euros daily.