Alitalia: Too Italian to fail

Alitalia: Too Italian to fail

Airline’s hallowed status has turned into a drag on the nation.

By HANNAH ROBERTS AND GIORGIO LEALI 5/28/20, 3:18 PM CET Updated 6/1/20, 4:43 AM CET

https://www.politico.eu/article/alitalia-airline-too-italian-to-fail/

Questions about how long Italy can keep treating an airline as the most sacred of cows are only growing louder.

Italy just can’t break up with Alitalia.

And it's an expensive relationship. After at least six failed rescue plans over the past 12 years, the Italian government has once again stepped in to prop up its flag carrier, now bludgeoned by the coronavirus crisis. Rome has decided to renationalize it with more than €3 billion of public money.

For both ordinary Italian voters and European Commission officials policing government subsidies, questions about how long Italy can keep treating an airline as the most sacred of cows (and keep shoveling money into a black hole) are only growing louder.

“Italians see Alitalia as a spaghetti strainer — you pour in money and it comes straight out,” said one former manager.

Indeed, the company has burned through an eye-watering €10 billion in bailouts and loans since it was privatized in 2008.

“You could say the coronavirus has been both the worst thing and the best thing for Alitalia,” the manager continued. “The losses have been enormous, but it has given the government an excuse to nationalize.”

This nationalization, however, is triggering criticism not only from opposition parties, which favored a private investor, but also from some politicians inside the governing majority, who are questioning the wisdom of yet another rescue package.

In Brussels, the big question is whether Italy has violated the rulebook on state aid and a new framework specifically on coronavirus-related aid.

Sacred, sexy symbol

Alitalia has enjoyed a peculiarly talismanic status under successive Italian governments.

Prime ministers from Silvio Berlusconi to Matteo Renzi, representing both left and right-leaning administrations, have battled to keep the carrier in the skies, despite losses of €200 million-€300 million a year for the past five years.

Alitalia first took flight in 1946, later becoming the airline of choice for popes and film stars during the golden postwar reconstruction years. In Federico Fellini’s “La Dolce Vita,” Anita Ekberg flies Alitalia.

Its branding has long sought to embody the sexy Italy, a leader in food, fashion and design. Uniforms, created by designers including Giorgio Armani and Alberta Ferretti, are presented at catwalk fashion shows.

Politicians like to claim a national carrier is vital to Italy’s strategic interests, facilitating business and tourism. But this has been overstated. Italy’s air traffic is now dominated by no-frills airlines, with Alitalia transporting only around 10 percent of international passengers in 2018.

While almost never profitable, in the early 1990s the airline was among the European leaders. About 4 in 10 of Italy’s international passengers used Alitalia.

But when the aviation market was liberalized, it failed to adapt to the competition: Unprofitable routes were kept running as convenient commuter routes for regional politicos and unionized staff prevented cuts.

Its supposed inefficiency has long been the butt of jokes like “What does Alitalia stand for? Arrived Late In Tokyo. All Luggage in Athens.”

Despite its shortcomings, Alitalia has always been too Italian to fail. To let it do so would be for Italy to concede that its status in the postwar economic primacy had declined irreversibly.

Worried about workers

Besides the prestige that a national carrier affords, the airline is a significant employer — another reason successive governments have always been ready with the bailout bucket.

Entire commuter belt communities such as Ostia and Fiumicino, on the coast near Alitalia’s Roman hub and key strongholds for the anti-establishment 5Star Movement in next year’s election for mayor of Rome, would suffer severe economic damage if the airline collapsed.

The hub generates thousands more jobs around the airport, in ancillary services like food and maintenance, according to Giulia Lupo, a 5Star Movement senator and former air stewardess with Alitalia. “You see a company with 11,000 employees, but I see a large system that generates significant satellite activity,” she wrote on Facebook.

With nothing to show for the years of bridging loans, bankruptcies and bailouts, the news that Alitalia is coming back like a bad boyfriend is deeply unwelcome.

At a time when resources are desperately needed in Italy, the scale of the bailout, equal to the amount to be spent on health care and twice what is earmarked for education, has played badly with ordinary Italians, under severe economic pressure in the lockdown.

There are numerous groups on Facebook with names like “Enough public money to Alitalia.” One Twitter user wrote: “To waste more money now to keep [Alitalia] going would be like spitting in the face of those who are facing difficulty in the crisis. It is time to pull the plug.”

Distortive darling

The latest rescue plan, involving German carrier Lufthansa, failed in December, after unions wouldn’t accept job cuts. The coalition government was still taking proposals from potential private investors when the coronavirus hit in March and sales dropped off a cliff, decreasing 76 percent year on year.

Even now there is still interest in buying Alitalia, whole or in part, from private players, including Bolivian-born billionaire Germán Efromovich’s Synergy.

But some are skeptical that the government is listening. Opposition parties such as center-right Forza Italia oppose a takeover and say a new private investor can be found. Giorgio Mulé, Forza Italia transport spokesman, told POLITICO that renationalizing private companies “is part of 5Star’s belief system ... This is a government that hates the free market. They have never explored the possible partnership offers from private business, rather they have treated them as an annoyance.”

Even inside the governing majority, not everyone is convinced. Raffaella Paita of Italia Viva said the complete lack of any industrial strategy, on restructuring, routes, or joining a group of airlines, made the investment of more resources “incomprehensible,” at a time when Italians are suffering.

Competitors claim that by helping Alitalia, the government could actually damage the Italian tourism industry. A Ryanair spokesman said the takeover “distorts the market, drives away business, creates higher prices for consumer and less connectivity.”

Professor Andrea Giuricin, a transport economist at Milano Bicocca University, agrees. It risks “destroying air travel as we know it, returning it to a 1980s monopoly with only a few rich people who travel,” he said.

The government’s support of Alitalia may also be in violation of EU internal market rules on state aid. Ryanair Chief Executive Michael O'Leary has described airlines such as Lufthansa, Air France and Alitalia as "subsidy junkies running around Europe hoovering up state aid."

Ryanair told POLITICO it had raised the new state takeover with the Commission, but any decision will take years.

The new aid is unlikely to be cleared under a new EU framework which says that funds can only go to companies that were in good health in December 2019.

The EU is already investigating Italy for two loans to Alitalia in 2017 and January this year totaling €1.3 billion. At the conclusion, Alitalia could be ordered to repay the total to Italy. But thanks to the restructuring, the old dead Alitalia would likely retain the debts and the new nationalized Alitalia would not be obliged to pay back the state, according to a state aid expert and former Commission official.

For Giuricin, the economist, the EU's failure to react promptly has been a "grave error" which "has given Alitalia the chance to distort the market with taxpayers' money. It is totally absurd.”

Italian Minister for Economic Development Stefano Patuanelli has claimed that the coronavirus has leveled the playing field in aviation, and that Alitalia“can once again be the feather in Italy’s cap.”

And there are signs that the new Alitalia could gain further advantages over competitors, such as imposed minimum wages for cabin-staff from foreign airlines travelling through Italy. Airport tax will now be diverted to help Alitalia with redundancy and other transition costs.

During the coronavirus outbreak, Alitalia is benefiting from running repatriation flights to and from Italy. It has also been awarded without any tender and with favorable conditions, the contract for operating off-season routes to Sardinia and other islands.

But Alitalia’s long-term problems are unlikely to be solved by a €3 billion cash injection. It is limited by having its hub in Rome, a tourist destination, rather than in the wealthy catchment area of northern Italy, and a lack of large jets for long-haul flights.

Already weak before the coronavirus, it is likely to need even more billions to keep running for the next few years. A different government, perhaps including the far-right League, Italy’s most popular party, is no more likely to be the one to say Arrivederci. As the former Alitalia manager put it: “Every government passes the problem onto their successor; that’s the way it has always been.”

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