THE FULL EXTENT of Alitalia's losing battle with its massive debts became clear as the group revealed further losses for 1995. The extent of the deficit makes an injection of fresh capital essential if the airline is to continue operating.
Although the group's headline loss was held to a relatively respectable L86 billion ($56 million), that came despite gains of L443 billion on asset sales, including the disposal of its majority stake in Aeroporti di Roma.
Behind the continued losses lies the airline's crippling debt burden, which grew again over the year, to reach L3.4 billion. If aircraft-lease liabilities are added into the figure, the total now stands at close to L4.7 billion.
The bulk of the debts were built up to pay for the airline's fleet expansion over the past five years, with most of the aircraft purchased for cash. Servicing the debt cost more than L400 billion in 1995, wiping out a modest operating profit by the core airline.
The extent of Alitalia's accumulated losses now obliges it to take action under Italian law, with a shareholders' meeting tabled for early June. The price of existing shares will be downrated while the airline attempts to cover the losses through all "available resources".
Alitalia's new chief executive Domenico Cempella is due shortly to unveil a new restructuring plan - the group's third in as many years. Details have not yet been released, but speculation in Italy suggests a target of shaving up to L700 billion from costs, with wage reductions and around 1,000 job losses also on the agenda. The airline workforce ended 1995 down 700 at 18,000, with another 700 job losses already outlined for this year.
Alitalia's parent state-holding company IRI, has also promised in principle to inject L1 billion into the group, provided that cuts are made and another L500 billion is found from asset sales.
IRI is itself heavily indebted, however, and needs to push ahead with further privatisations before it can raise the cash for Alitalia. Whether the privatisation programme can continue depends, in turn, on the complexion of the new Government following the recent General Election.
The presence of Communists within the winning centre-left coalition has raised question marks over its likely commitment to privatise, although Romani Prodi, who heads the centre-left coalition, is a former chairman of IRI. During his time at the holding company in the late 1980s, Prodi was responsible for the bulk of the privatisations carried out within the group and also lent his support to efforts to restructure Alitalia.
Source: Flight International
