Alitalia Loan Under Investigation From The European Union

News surfaced on Friday that the European Union is investigating a €400 million loan from the Italian government to its national airline, Alitalia. This is due to allegations that the loan breaches rules surrounding state aid. The European Commission will assess whether or not the loan is considered state aid and if it is in compliance with EU rules.

Alitalia
Alitalia’s financial situation has worsened over the past year. Photo: Simple Flying

The European Commission’s investigation

According to Skift, the European Commission (EC) said in a statement that its investigation will seek to find out of the “loan granted to Alitalia constitutes state aid and whether it complies with the rules on state aid to companies in difficulty.” The Financial Times reports additional statements from the EC:

“[The investigation] will provide clarity to Italy and the company as well as interested buyers…The commission’s role under the EU Treaty is to help ensure a level playing field in the EU’s Single Market to the benefit of European consumers and businesses,”

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Alitalia A330
Alitalia has recently had to offload some of its widebody aircraft amid cut routes in order to save money. Photo: Alitalia

Similar investigation already taking place

The Financial Times also reports that the EU is already investigating the legality of a 2017 €900 million loan from the Italian government. The investigation began in April 2018.

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Italy’s minister for economic development, Stefano Patuanelli, told the newspaper late last year that the €900 million in loans from the Italian government did not count as state aid. The reasoning was that the loans would only last until the airline was sold. “We are not providing [state] aid to the [Alitalia airline], but for the management of a sale process that unfortunately has taken a very long time,” Mr Patuanelli said.

Alitalia 777
Photo: BriYYZ via Wikimedia Commons

What are the rules?

According to the BBC, the rule restricting state aid is in place to prevent the distortion market competition. The aid can take various forms including direct cash grants or indirect aid such as preferential borrowing rates or tax credits.

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EU rules allow its member-governments to provide state aid “only with approval from the European Commission”. However, exceptions to the rules exist. For example, governments are allowed to provide aid for broadband infrastructure without prior approval. Furthermore, aid worth less than €200,000 over three years is exempt.

Conclusion

Looking at the rules set out by the EU around state aid, and more importantly the intent of the rule, it would appear that the loans provided to Alitalia do indeed distort market competition. However, the Italian government would be able to defend itself with the continued assertion that the loans are only in place until a buyer can be found. This is something the airline has desperately been trying to attain for months now.

Do you think this loan violates the policies set out by the European Union? Does it distort market competition? Let us know what you think by leaving a comment!

Simple Flying has contacted Alitalia for an official statement or comment. However, at the time of publishing, no response has been received.

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Martyn

Over the year's Alitalia has received about €5 Billion in state aid and been investigated in 2007 the EU rubber stamped it amid complaints from other airlines nothing's going to change.

Flopsi

As Aerolineas Argentina this is a failed airline. Only solution shut both down. Both are full of corruption and feudal unions living from tax money

Howdy

If this investigation takes as loooong as one currently underway, seems Alitalia will be out of business by then

TonytTDK

Clearly, if the Airline does finally cease trading & is not sold as a going concern, the the Italian government will be in breach of EU rules…..
However, if they do go under, it will be reasonably clear that for all their illegal subsidies, they weren’t able to sufficiently distort the market to save the company……
& the investigations make the sale less likely, as a potential buyer has to take on a basket case of an airline, fund it until it gets back to profitability
AND pay the Italian government €1.2 BILLION for the privilege.!!!