The end came as Dutch group KLM issued a statement at the end of April that their "virtual merger" was terminated. KLM president Leo van Wijk says that the "difficult and not unpainful decision" was made due to "risks associated" with the long-term development of Milan Malpensa Airport as Alitalia's major new hub and the timing of the sale of the Italian Government's remaining stake in its flag carrier. Italian state-holding company IRI still holds 53% of Alitalia, but has yet to reveal how it plans to dispose of this holding.
The alliance deal was struck at the end of 1997 and progress had been made in linking the teams, but the completion had been left hanging. KLM, struggling with a plummeting share price, felt that it could not afford to wait longer and appears to have had a choice of committing fully or calling off the deal.
"It is clear that KLM believed that they had to move now as the delay might mean they would miss other potential partnerships in Europe," says Chris Tarry, analyst at Commerzbank.
Alitalia chairman Fausto Cereti was quick to leave the door open for KLM to return. "I still consider today that KLM is our best possible partner," says Cereti. Van Wijk seems less optimistic "Never say never, but the likelihood is not high." KLM is to cease joint services from the end of August. Van Wijk is currently reassessing KLM's alliance options, and he does not discount the possibility of the group becoming a junior partner in a full merger.
Cereti acknowledges that the share sale has cast a shadow over the KLM deal and believes that it is wise to put further decisions on hold until the shareholder meeting in June makes clear who will own Alitalia. "We want to give KLM the time to think about it," he adds, although the thinking in Rome is that time may be running short.
Meanwhile, SAir, parent company of Swissair, has reached agreement with the Belgian Government to take a majority stake in Belgian flag carrier Sabena, increasing its stake from 49.5%to a majority 85%.
This would be the first true cross-border acquisition of a major European flag carrier and throws up interesting problems, not least because of Switzerland's place outside the European Union (EU). One hurdle was cleared when the Swiss voted in a referendum to ratify a series of bilateral treaties with the EU at the end of May, including air transport. This was necessary for the merger to go ahead.
The results of the referendum will have to be ratified by all EU member states, a process not expected to be completed until next year. Then there is the problem of what to do with Belgian bilateral agreements with third countries.
There are basically two options. The Belgian Government could renegotiate its bilaterals without a nationality clause, although this would be a laborious process given that Sabena's destinations include 17 African countries, the USA, Canada, India and Japan, as well as 10 European countries outside the EU. Belgium also has bilateral treaties with countries that Sabena does not fly to, such as China.
A second option would be to set up a Belgian shell company which would hold bilateral rights, but effectively be controlled by SAir. The problem would be to make it sufficiently Belgian to satisfy nationality clauses.
Source: Airline Business
