Delta and Others Try to Fix Alitalia, But They…

Delta and Others Try to Fix Alitalia, But They’ll Fail:

After years of delays and failures, the Worst Airline Ever, Alitalia, has a shiny new reorganization plan which will thrust it into the pantheon of the world’s great airlines. I almost wrote that without laughing.

Perhaps I’m overstating things. There is no actual “plan,” or at least none that has been released. Instead, what we have is the line-up of entites that are going to put money into the new, new, new Alitalia in exchange for an ownership stake. I’m sure there will eventually be an actual commercial plan to fix the airline, but that won’t matter. As long as the government continues to prop this airline up and avoid a real, full reorganization, it will never succeed.

You’ll recall this latest attempt at reorganizing started after the last effort led by Etihad went south. Etihad’s strategy to invest in failing carriers would have bankrupted any other airline. But when you’re backed by the government, you don’t have that problem. The thing is, even the Abu Dhabi government has its limits. Alitalia was going to get a divorce from Etihad, but it just couldn’t find a way to live on its own without those deep pockets. It needed to find another beau to survive.

The government funded the airline while it worked on finding a good — ok, “somewhat acceptable” should suffice — option. Late last year, the government finally made a move, sort of. Ferrovie dello Stato Italiane, the national rail company, was tasked with taking over the airline, but it wouldn’t do it alone. It had to put together a group of investors. This process was delayed time and time again, but we now have a path forward financially.

The biggest partner — reportedly with the same 35 percent stake as Ferrovie dello Stato Italiane — is Atlantia, an Italian firm that primarily builds and operates roads and bridges. Depending upon who you ask, Atlantia doesn’t appear to be particularly good at this. Remember the bridge that collapsed in Genoa killing more than three dozen? That was Atlantia’s.

In fact, Atlantia was in hot water after the bridge collapse, and there was discussion about it losing its rights to continue operating much of its holdings in Italy. CBS News noted:

Premier Giuseppe Conte and key ministers said they are launching the process to revoke the concession, citing inadequate maintenance. Prosecutors are investigating both the maintenance and design of the bridge as a cause of the deadly collapse.

Now, let’s say you’re the government. You have a company that has allegedly run a poor operation and put people in danger with inadequate maintenance. How would you punish the company? Oh right, make it invest in Alitalia. That is punishment, though the optics of having a large equity investment from a company that the government recently accused of performing inadequate maintenance is just…. I suppose I have inadequate words to describe this.

So, you have the state-owned railway leading the charge by presumably pushing Atlantia — which I think we can all agree is far too similar in name to Alitalia — to join the coalition. If it doesn’t, well, who knows what repercussions there might be. The government itself will also maintain a smaller stake on its own. It sounds like we have a new “coalition of the willing” in our midst.

But wait, there’s actually one more investor, and this one participated all on its own accord. Delta — an airline that loves stakes in airlines but usually not ones that are likely to fail — is going to put a little money in.

Before you wonder if Delta has gone completely mad, there is a rationale for this. Alitalia is a part of the Delta/Air France/KLM joint venture today, and Delta likes having the feed in Italy, a big and important market in Europe. So that traffic and relationship is worth something right off the bat. It’s worth even more when you consider that if Delta doesn’t step up, that traffic could align with United or American (or one of their partners) and shift it all away from Delta.

We don’t yet know how much of a stake Delta is taking — unconfirmed reports say 15 percent — nor how much they had to put in to acquire that, but presumably they did the math and assumed it was worth a gamble. Now Delta has to just hope that the investment can be recouped before Alitalia goes bankrupt again.

This is far from a done deal, but the pieces are coming together. Once it’s done, then we will presumably hear more grandiose plans about how Alitalia will turn itself around. At this point, however, the troublesome meddling of the Italian government all but ensures whatever the plan is, it won’t work. As if that’s not bad enough, there’s still Air Italy flooding capacity in the market as well as the low cost carriers from easyJet and Ryanair to Ernest.

Alitalia hasn’t really mattered for a long time. If it disappeared, its capacity would just be replaced by others quickly. But pride is a funny thing, and the Italian government can’t admit defeat. The madness continues.

August 06, 2019 at 01:45PM Source: