State aid conditions attached to Alitalia's capital injection present few surprises, other than the insistence on the removal of the carrier's monopoly rights on international routes and a potential loophole which could allow the carrier to circumvent restrictions on capacity expansion.
The European Commission was set to rule in mid-July that holding company IRI could inject L2,750 billion (US$1.8 billion) into Alitalia as state aid, with conditions attached. The amount granted just falls short of Alitalia's original L3,000 billion demand.
The ruling ends months of bargaining by the Italian authorities, which tried to persuade the Commission that the funds should be approved under the market investor principle. The state aid will be released in three tranches, with immediate access to L1,000 billion, another 500 billion lire in May 1998 and 250 billion lire in May 1999. Alitalia has already received L1,000 billion from IRI.
While most of the conditions attached to the aid adhere to the well tried formula applied in previous rulings, one particularly severe condition and one key oversight stand out.
The Commission has put its foot down on Alitalia's monopoly rights on routes outside the European Union, demanding that these be renounced by the end of 1998. But, while the Commission may have adopted a strict stance on route rights, the Achilles heel in an otherwise carefully drawn up plan concerns Alitalia's charter subsidiary, Eurofly.
As none of the state aid conditions apply to Eurofly, Alitalia could lease additional aircraft to the subsidiary to operate scheduled services, thereby bypassing strict capacity growth limitations, says one Italian airline source.
Other conditions oblige Alitalia to sell its 30 per cent stake in Malev - a move that, will delight the Hungarian carrier which has long campaigned to sever all links with its partner; the remaining 5 per cent stake in the engineering firm Alfa Avio; and holdings in a series of regional airports. Alitalia will also be barred from investing in other carriers.
The Commission will also seek a commitment that cash-strapped Alitalia will limit capacity expansion to 2.7 per cent below overall market growth and not engage in 'downward price leadership' within Europe. Further conditions include cutting 1,212 jobs by 2000 and freezing fleet numbers at 157 aircraft. The carrier had planned to expand the fleet to 172 aircraft.
* The European Court of First Instance made its first ever air transport ruling in June, rejecting Air Inter's application to annul a European Commission decision. The Commission had refused the French airline's request to maintain exclusive rights on routes from Paris to Marseilles and Toulouse after TAT complained it had been refused access to the routes. Air Inter had claimed that it needed a monopoly on those lucrative routes to cross-subsidise unprofitable services.
Lois Jones
Source: Airline Business
