November is targeted to see a new dawn for Italy's airline sector and its long-struggling national carrier Alitalia. There have been many new dawns before. Yet Alitalia has still found itself again drinking in the last-chance saloon.
This time rescue efforts contain more drastic action, which in turn is likely to have a knock-on effect across the Italian airline sector. It not only removes the Italian state from Alitalia ownership, but will essentially merge it with Italy's second largest operator Air One and shrink their combined operation.
The latest rescue was hatched by Silvio Berlusconi's government after taking power earlier this year. It came after his high-profile criticism of an earlier deal under which Air France-KLM was to buy the carrier, which ultimately broke down.
Kept afloat by a �300 million ($376 million) bridging loan - a commercial deal according to Italy, but subject of a European Commission state aid probe - Alitalia ultimately entered Italy's amended rules on extraordinary administration for large companies while efforts to put together a group of Italian investors to buy the carrier continued.
The Compagnia Aerea Italiana (CAI) grouping, led by Piaggio Group chairman Roberto Colaninno, has since submitted an offer for large parts of Alitalia with a view to launching a new, debt-free airline in November.
The first hurdle appears to have been overcome after unions backed the project. Unions eventually offered support for the framework agreement, despite concerns over cutbacks.
CAI's Phoenix Plan marks a reduction on a combination of today's Alitalia and Air One operations - the new carrier would operate around 150 aircraft compared with 200 and is expected to cut about 3,250 jobs - but is roughly comparable in size to Alitalia today.
AIR ONE KEY
Air One is key to the plan. The inclusion of Italy's second largest carrier, whose parent AP Holdings vied for Alitalia in the earlier failed privatisation efforts, provides a fast-track to modernising Alitalia's ageing fleet.
"Air One has a relatively modern fleet and you can very quickly modernise the Alitalia fleet," says CAI. "Two-thirds of the new Alitalia fleet will be modern," he says, adding that a further 40% of the fleet would be renewed by 2013 using outstanding Air One orders.
Fast-growing Air One has already embarked on the overhaul of its medium-haul fleet with the arrival of Airbus A320 narrowbodies - part of a commitment for up to 90 of the type - and this year moved into the long-haul market. It started flights to the USA this year by leasing two Airbus A330s and placed firm orders for 12 A330-200s and 12 A350s.
Alitalia, according to Flight's ACAS database, itself operates 46 Airbus narrowbodies - with build dates ranging from 1994 to 2004 - alongside 10 five- to six-year-old Boeing 777s and 10 Boeing 767s.
But around half its fleet comprises 73 Boeing MD-82s - the newest of which are more than 10 years old and the oldest of which date back 25 years. It is likely that aircraft left behind by CAI will be from this fleet.
One of the other key issues for the consortium has been tackling the politically sensitive subject of whether to base the operation at Rome Fiumicino or Milan's Malpensa and Linate airports. Air France-KLM, in its takeover effort, opted for Rome and began scaling back its presence at Malpensa airport. "CAI's answer is there will be no hub there will be six principal airports across Italy," it says.
While Piaggio's Colaninno will chair the new company, Rocco Sabelli will be the operational head - a man Colaninno successfully worked with at Telecom Italia and Piaggio and a man credited with a strong track record for turning round businesses.
NATIONAL INTEREST
"The entrepreneurs have made their money by running businesses well. They are doing this as a service to the country, but they are also doing it for commercial reasons," says CAI. "The geography of Italy and the transport infrastructure on the ground means air links for passengers and freight are important to Italy and an issue of national interest. That is the reason it is so attractive to investors, it is a strong domestic market, the fourth largest in Europe. That is a proper business even before the international routes."
CAI was formally established on 28 October and hopes to launch the carrier towards the end of November. It will also pick a strategic partner - and minority equity partner - for the relaunched carrier. Air France and Lufthansa are chiefly being courted - both already hold partnerships with Alitalia and Air One respectively. Sources suggest a decision is not expected until nearer the year end.
Hurdles remain, ranging from ensuring the relaunch has the backing of the European Commission, maintaining union support, to the challenging market conditions facing all carriers. But amid the uncertainty, one thing is certain. Whatever happens to Alitalia will filter through the rest of the Italian airline sector. A number of Italian carriers have put themselves in the frame to pick up assets from the group.
This includes confirmed interest from Blue Panorama, Eurofly, ItAli Airlines and MyAir for parts of Alitalia or subsidiary carriers Volare and Alitalia Express operations, while Italian freight carrier start-up ALIS and Miniliner owner Miro Ridici Finance have submitted interest in Alitalia's cargo operations. But this hinges on what is available after CAI picks the assets, In the meantime, carriers are continuing to develop their own activities. Meridiana - which will emerge as the second carrier in Italy if Alitalia and Air One are combined - has already unveiled its own restructuring plans aimed at countering the tougher conditions. It has highlighted more flexible labour deals and fleet overhaul - it plans to replace 14 of its 18 MD-80s with newer Airbus narrowbodies - as key to returning to profitability.
While budget carrier MyAir registered its interest in Alitalia's own budget operation Volare, the airline's focus is on developing a partnership with central European budget carrier SkyEurope. It has unveiled plans for a wide-ranging co-operation with the operator aimed at securing greater economies of scale.
AIR DOLOMITI PLANS
Lufthansa's Italian regional carrier Air Dolomiti meanwhile is strengthening its presence at Milan Malpensa - in light of Alitalia's scaling back at the airport - with plans to station six Airbus A319s at the northern Italian airport from February. Air Dolomiti will use the aircraft to fly non-German European routes.
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While the outcome of saving Alitalia dominates the Italian landscape, the sector also faces the same market pressures and tough conditions confronting airlines. Italy has seen its share of collapsed carriers this year. Alpi Eagles stopped flights at the start of the year and has entered administration, Air Bee and Club Air have suspended flights - the former after only starting flights this year - while Brescia-based Ocean Airline is among this year's cargo carrier casualties.
Competition is intense, with no let-up from foreign carriers, notably budget operations EasyJet and Ryanair. Irish carrier Ryanair says Italy is now its second largest market after the UK and plans to set up two more bases at the Sardinian airports of Alghero and Cagliari and to add 11 routes from Bologna from spring.
UK operator EasyJet has also been steadily increasing its presence in the Italian sector, particularly out of its Milan Malpensa base.
"I don't think anyone is particularly excited about the crumbs from the Alitalia table," says EasyJet. "Clearly there will be opportunities where Alitalia has to pull off routes, but there have already been opportunities."
Both carriers are closely watching the relaunch of Alitalia. Ryanair has already lodged a complaint with the European Commission over Italy's restructuring plan for Alitalia, while EasyJet is monitoring the situation.
"We are particularly concerned about the Rome-Milan Linate route," says EasyJet, of the route now dominated by Alitalia and Air One. "We have no problem with the creation of an Italian national carrier. We just want to make sure the consumers are not hit."
Source: Flight International
