Italy’s Government Approves €400M Loan For Alitalia

The Italian government has approved plans to grant a €400 million ($443 million) loan for troubled airline Alitalia. The country’s national flag-carrier has been struggling since April 2017 when it declared bankruptcy. The new loan will allow the carrier to continue operations while its future is decided.

alitalia aircraft on runway
Alitalia has been bankrupt since 2017. Photo: Kentaro IEMOTO via Flickr

The loan

On the 2nd of November, a council of ministers in Italy sat down to begin discussions relating to the ongoing saga of Alitalia airlines. The council needed to decide on the “urgent measures” which could help to save the airline. Yesterday, after a month of talks, the government announced it would be providing Alitalia with a €400 million loan which will be used for “non-deferrable management needs.”

The loan will allow the airline to restructure in order to attract a new buyer. The council believes the loan amount will mean the airline will be bought in spring; the date 31 May 2020 was given as a deadline. This will mean the airline will be operating for the summer season, provided it can finalize a deal.

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Nationalization

So far, Alitalia has so far been unsuccessful in attracting a new buyer which has resulted in government intervention. Just last month there were rumors that the airline would be nationalized. You can read more about the plans here in Henry Bewicke’s coverage of the potential solution.

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Lufthansa aircraft
Lufthansa and Delta have looked at buying Alitalia but both deals fell through. Photo: Lasse Fuss Via Wikimedia

However, it’s not as if no one was interested in buying Alitalia. Several other airlines were interested but both Lufthansa and Delta Air Lines dropped out at the last minute. Another potential buyer is rail firm FS Italiane which had hoped to secure an agreement with SkyTeam to buy the airline.

Talks failed in November and a bid was not placed. With several agreements falling through and unions pressuring the government for a long-term solution, nationalization might be the only remaining option if this loan fails to secure a buyer by the end of spring 2020.

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Where did it all go wrong?

Alitalia and its regional division, Cityliner, has been run by state-appointed administrators since its bankruptcy in 2017. The airline has not posted a profit for 15 years and so, in 2017, former shareholder Etihad Airways pulled its funding. Estimates state that the airline is losing €700,000 ($789,000) per day as it rapidly burns through the previous loan of €900 million which it received from the Italian state.

You may be asking why the government is willing to keep plowing money into the failing airline? Well, aside from the fact that the airline is the country’s national flag-carrier, the main focus of the government has been on protecting jobs.

Economic Development minister Stefano Patuanelli told CNBC in an interview that Alitalia “needs a turnaround that takes into account workers and their jobs.” Allowing the airline to fail and using its liquidated assets to pay off debts is clearly the last resort.

Alitalia jet on taxiway
Alitalia could face liquidation if it does not secure a buyer in the coming months. Photo: Alitalia

With the May 31 deadline looming, nationalization is looking like an increasingly likely option. A potential nationalization could run for up to 12 months to give the government some breathing room. During this time, it would need to find a solution or it would be responsible for managing redundancies before passing off any assets to a foreign partner.

The €400 million loan has come at a crucial time. No doubt we will be seeing more activity from Alitalia in the coming months as it attempts to secure its future.

Do you think this new bridging loan will be enough to save the airline? Or is the Italian government just delaying the inevitable downfall? What do you think about nationalizing the airline? Let us know below.

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Anonymous

Again?! Please pull the plug!

Gerry S

Very few airlines who time and time again require loans and government bailouts ever succeed in it’s then present state. Look at India, South Africa, even Air France. All struggling mightily.
A few others do, but only by drastically changing their business model. Germany’s Lufthansa comes to mind. Alitalia can still work but you first have to kill it then it may be resurrected. Airlines such as Emirates however can make it work.

TonytTDK

Alitalia is where it is, because no-one is prepared to bite the bullet & admit that it’s business model is no-longer relevant.! Even Air France, that bastion of retro-thinking, has moved some way forward, probably because of it’s amalgamation with KLM.? Alitalia loses almost €3/4 MILLION A DAY……. yet, if they were prepared to cut the unprofitable routes & concentrate solely on the profitable & close to break-even ones, their MIGHT be some light at the end of the very, very dark tunnel they’ve been in for years………. but they won’t, because no-one is interested in any solution which involves… Read more »