Rome to retain power over future Alitalia
By Tony Barber in Rome
Published: September 24 2004 09:18 | Last updated: September 24 2004 18:28

The Italian government is to retain major influence in the two companies to be formed out of Alitalia after management and trade unions signed an agreement yesterday that dilutes the airline's original rescue plan.

Several union leaders hailed the deal as a victory, saying they had persuaded Giancarlo Cimoli, Alitalia's chief executive, to modify his idea of splitting the near-bankrupt Italian flag carrier into two entirely separate companies.

But the agreement is sure to come under close scrutiny from the European Commission and rival airlines, watchful for any sign that Alitalia's new structure may conceal indirect state aid.

"I do not see how this plan can work without a write-off of existing debt and a substantial injection of new capital," said Andrew Cahn, British Airways' director of government and industry affairs. "If this is to come directly or indirectly from the public sector, the Commission must ensure the state aid rules are observed.

"After two injections of state aid it is unacceptable for the Italian government to put in a third."

Under the agreement, Alitalia, 62 per cent owned by the government, will be divided into AZ Fly, handling flight operations, and AZ Service, for maintenance and other ground services.

After six hours of talks, the unions secured a promise from Mr Cimoli that the government would keep a stake of at least 30 per cent in AZ Fly and that a forthcoming share sale would be restricted to institutional investors.

Moreover, Alitalia will initially own all of AZ Service and, when it reduces its holding to 51 per cent, the remainder will be placed with another state-owned entity. This is widely expected to be Fintecna, a financial holding company of which the government owns 70 per cent.

However, only eight of Alitalia's nine unions signed the deal. The ninth, Sult, held a ballot of 400 members yesterday and said all voted against it.

Antonio Marzano, industry minister, said he was confident the EC's competition authorities would not object to the deal. "Europe's position is that if the industrial plan goes ahead, which is what is happening, there aren't any problems," he told reporters.

One potential issue is Alitalia's €1.7bn debt, which BA has complained may be parked with AZ Service, freeing AZ Fly to benefit from a capital increase next year of as much as €2bn. Alitalia is poised now to draw on an emergency €400m loan, guaranteed by the Italian government, that will enable it to stay in business for the next six months.

The Commission declined to comment, saying Italy had not yet officially informed it of the plan.

Under the agreement, Alitalia will be divided into a company known as AZ Fly, which will handle flight operations, and another company called AZ Service, which will include maintenance and other non-flight businesses.

The Italian government, which currently owns 62 per cent of Alitalia, will retain a stake of at least 30 per cent in AZ Fly.

The government will also wield great influence over AZ Service, because the agreement foresees that Alitalia will keep a 51 per cent stake in that company, with the remaining 49 per cent going to another state-controlled entity - almost certainly, Fintecna, a financial holding company.

Under the plan, AZ Fly will benefit from a capital injection of more than €1bn early next year, in addition to an emergency €400m loan that Alitalia will draw on immediately to keep it in business over the next six months.

The deal is certain to come under intense scrutiny from the European Commission and from rival airlines, some of which have complained that Alitalia is trying to park its debt with AZ Service in what amounts to a form of disguised state aid.

The deal was reached in the early hours of Friday at talks between Giancarlo Cimoli, Alitalia's chief executive, and union leaders. Eight of the nine unions, which represent most of Alitalia's 20,700 staff, signed the accord, while the ninth - Sult, a small union representing ground staff - refused to do so.

Alitalia shares, which have rallied in the last month on hopes an agreement would be reached, added another 2.9 per cent by midday in Milan at €0.29.

Mr Cimoli told parliament on Thursday that Alitalia would almost completely run out of cash in one week's time, and it was essential for his rescue plan to receive approval.

Unions agreed last week to about 3,700 job cuts at Alitalia, but put up resistance to Mr Cimoli's proposal to split up the airline unless staff at AZ Services were given assurances of job security.