Alitalia: bankruptcy around the corner after workers referendum

8 years ago - Published in Finance, Fundamental Analysis

Alitalia employees late Monday rejected a government-brokered package of job and wage cuts that was aimed at saving Italy's flagship airline from bankruptcy, now the risk of bankruptcy looms for Italy's flagship airline.

Alitalia said Tuesday that its board concluded that in light of the employees' vote, it has decided to "begin procedures foreseen by law," a reference to extraordinary administration. The board could meet on Thursady to chart the next step. Such a scenario could result in shedding unprofitable routes, most likely predominantly domestic ones, to competitors, and selling off aircraft to help pay creditors.

It was unclear if the Italian government might try to convince European Union officials to allow a "bridge loan" for Alitalia to ease the crisis.

In a statement, Alitalia's board, said it had "taken note with regret" of the rejection of the cost-cutting plan, whose aim was to open the way for investment, including more than 900 million euros (about $1 billion) in new financing. The deal would have cut flight crews' wages an average of 8 percent and laid off some 980 permanent workers.

In a separate statement the airline says despite the rejection of the deal, Alitalia maintains its schedule and its operations will not be altered at this time.

"All parties will lose: Alitalia's employees, its customers and its shareholders, and ultimately also Italy, for which Alitalia is an ambassador all over the world," said James Hogan, the airline's vice chairman and president and CEO of Etihad Aviation Group, Alitalia's biggest minority shareholder.

Hogan noted that Etihad had poured in "vast amounts of financial and commercial support during the past three years" and had reaffirmed "its strong commitment and principal willingness to support the airline with a package worth nearly 2 billion euros ($2.2 billion) in aggregate to help fund Alitalia's new five-year business plan."

Alitalia has suffered from competition from low-cost airlines. And high-speed trains run between Rome and Milan, Italy's political and business hearts, draining passengers from what was long a bread-and-butter Alitalia route. A return to profit has throughout remained elusive – Alitalia last recording a net profit in 1999.