Air France-KLM deal to buy Alitalia falls apart

Published Thursday, April 03, 2008

By Agencies

Air France-KLM's takeover of Italy's Alitalia fell apart on Wednesday after talks with unions broke down, leaving the state-owned airline on the ropes just 11 days before a general election.

Alitalia -- once a proud symbol of Italy's post-war economic boom -- now risks bankruptcy and its fate has become a top political issue.

"This company is cursed: only an exorcist can save it," Alitalia Chairman Maurizio Prato was quoted by unions as saying after the negotiations collapsed. Alitalia later said he had resigned.

Air France-KLM, long considered Alitalia's best hope of reviving its fortunes, said conditions did not exist for further talks but that it continued to believe in the project.

Alitalia, which loses one million euros a day and has a net debt of $2.14 billion, said it needs a cash injection by mid-year to keep flying.

Italy's outgoing centre-left government, which is trying to sell its 49.9 per cent stake in the carrier, had approved the takeover two weeks ago. But the deal soon ran into resistance from unions, poll favourite Silvio Berlusconi and Milan's airport operator.

Air France-KLM CEO Jean-Cyril Spinetta flew back to Paris -- on an Alitalia jet -- on Wednesday after rejecting union demands to take on the airline's ground service unit, speed up plans to buy new planes and keep its cargo unit open, union sources said.

The world's largest airline said in a statement Spinetta regretted the breakdown.

Italy's economy minister overseeing Alitalia's sale earlier warned the only alternative to the deal was emergency administration -- broadly similar to US Chapter 11 proceedings -- in which an administrator decides whether the company can continue operations.

The leader of Italy's biggest union, Guglielmo Epifani, called the talks collapse "a defeat for the whole country."

Shares of Alitalia closed down 5.7 per cent to 0.50 euros, giving the company a market value of around 735 million euros, before the collapse of negotiations. They will be suspended on Thursday, a Milan bourse spokesman said.

'A GRAVE MISTAKE'

Despite Alitalia's history of losses and frequent strikes, its dominance of the lucrative Milan-Rome route makes it an attractive asset for Air France-KLM.

The Franco-Dutch airline, which planned to cut 2,100 jobs at Alitalia with more redundancies at its ground service unit, had made union approval and support from Italy's next government a condition for wrapping up the deal.

Alitalia, which has a workforce of around 19,000, has warned its precarious finances could not withstand delays to talks and set Wednesday as the deadline for an agreement.

The airline has been on the block for 15 months, with the government's first attempt at selling it in an auction ending in failure when all the bidders pulled out. The European Union has banned further state aid for Alitalia.

Italy's cabinet is expected to hold an emergency meeting on the airline on Thursday, a union official said.

"The unions have made a grave mistake in breaking off the negotiations because the proposal was serious and concrete," outgoing Prime Minister Romano Prodi said, adding unions should take responsibility for the failure.

Opposition politicians campaigning for the April 13-14 election and critical of the deal because it would cut operations at Milan's Malpensa airport rejoiced.

"News that Air France has abandoned the talks, hopefully for good, is very positive -- that deal was neither positive for Alitalia nor for Malpensa," said Northern League leader Roberto Maroni, a Berlusconi ally.

The media tycoon has been fishing for an alternative bid by Italian businessmen. Economy Minister Tommaso Padoa-Schioppa ruled this out as "impossible" and not a solution for an airline in need of deep restructuring.

"If the Air France-KLM offer falls apart, we would be left without the only takeover offer," Padoa-Schioppa said earlier on Wednesday.

"It would be bitter destiny if the company, dragged down for years because of a perverse relationship with politics, got its mortal blow from exploitation for election purposes or from the lack of a deal with unions." (Reuters)

Follow Emirates 24|7 on Google News.

The page was last updated on: 14 January 2016 16:08