Italian Government Set To Take Control Of Alitalia

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Reports coming from Italian media on Sunday indicate that the Italian government may soon take full control of its flag carrier, Alitalia. Even before the current global health crisis, the airline was already in serious financial trouble. Recent travel restrictions and the resulting drop in demand have essentially crushed the carrier.

Alitalia was losing large sums of money even before the current crisis. Photo: Getty

Report details

Reuters indicates that the reports are coming from Italian newspaper Il Messaggero – which released the story on Sunday. Other sources have reported it as well. It describes a plan, already at an “advanced stage”, that will see the government take control of both Alitalia’s aviation and land operations. This would be done through “a public vehicle” and implemented “in a short time”.

Before the current crisis, and the travel restrictions associated with it, the Italian government had previously set the airline’s sale completion deadline as May 31st. Leading up to this date, potential investors were invited to submit expressions of interest by March 18th. Of course, with the entire country of Italy in lockdown, and the aviation industry facing a bleak short-term future, it’s not exactly a great time to buy an airline.

With all of Italy on lockdown, airport terminals across the country sit empty. Photo: Getty Images

Pre-existing conditions

Alitalia has been run by its administrators since it went into extraordinary administration in May 2017. With an accrued a debt of US$3.3bn, the airline has been looking for a buyer. There were previous reports of interest from aviation investors ranging from Lufthansa, Delta Air Lines and easyJet. Even an Italian railway company was a prospective buyer. Unfortunately, none of these parties were convinced that the airline would be a profitable investment.

Meanwhile, the European Union is investigating a €400 million loan from the Italian government to the airline. Unspecified parties allege that the loan breaches rules surrounding state aid. Thus, the European Commission has been assessing whether or not the loan is considered government aid and if it is in compliance with EU rules.

If that wasn’t bad enough, the EU is already investigating the legality of a 2017, €900 million loan from the Italian government. The investigation for this case began in April 2018.

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Intense competition from budget carriers for European flights has been a large factor in Alitalia’s difficulties. This is combined with equally-intense competition from other legacy carriers for long-haul, intercontinental travel.

With the Italian outbreak at its worst in the northern part of the country, Milan Malpensa airport shut down completely on March 9th. Photo: Getty Images

Conclusion

We are hopeful that government control may save the airline but this move only invites more questions. For example, we do not know the duration of this control, and if there is any immediate action that will be taken by the government to reduce costs.

In fact, airlines around the world have been announcing sweeping changes to their staffing in order to survive. What began as pay cuts and unpaid leave at some airlines, has morphed into temporary lay-offs or possibly permanent job cuts by other airlines.

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Once the aviation industry returns to a state of ‘normalcy’, do you think a buyer will emerge for Alitalia? Or will the Italian government be stuck trying to keep it running? Let us know your thoughts in the comments.

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