How Would A Deal With Lufthansa Change Alitalia?

Before we get into how a deal with Lufthansa would change Alitalia let’s take a look at some of the hurdles that would need to be overcome before any deal could be done. The Italian national flag carrier just like Air India and South African Airways is only still flying today because of public money.

Alitalia just got a 400€ million loan. Photo: Alitalia

Overburdened with more employees than is necessary, of which many are earning top dollar and still operating ancillary services that could be outsourced, there is no way that Alitalia can make it without government aid.

Since 2017 the over-bloated state airline has been run by special administrators all looking to find private investors to fund and run the loss-making enterprise. Now, following the eighth deadline in two and a half years of special administration, Alitalia managed to secure a 400€ million loan from the Italian government to keep flying.

The Italian knows what needs to be done

Stuck between a rock and a hard place the Italian government does not want to see the airline fail with the loss of 12,000 jobs and is also reluctant to see it split up. The truth of the matter, however, is that it needs to make some drastic changes and cuts if it hopes to attract outside investment.

Everybody, of course, knows this, but nobody wants to be responsible for what they all agree needs to be done. Italy’s newest attempt to rescue Alitalia is to try and lure in German national flag carrier Deutsche Lufthansa AG.

Now with a new management team in place that includes an expert in the running of airlines, the team will be tasked with making the changes needed to get Lufthansa to run Alitalia.

Lufthansa has turned around other loss-making airlines

Lufthansa has already proven its ability to turn loss-making airlines into successful entities by acquiring a controlling interest in first Swiss, Austrian Airlines and then Brussels Airlines.

When the idea of Lufthansa coming in to run Alitalia first surfaced, the German airline is reported to have told Alitalia’s administrators that the loss-making carrier would need to restructure.

From what we know from undisclosed sources close to the goings-on in the Italian airline, Lufthansa wants to see a 30% reduction in Alitalia’s fleet size.

Alitalia needs to be broken up to survive. Photo: Alitalia

While not specifically mentioning redundancies, Lufthansa did bring up the possibility of selling off Alitalia’s baggage-handling unit and making some major changes at its maintenance division. On top of this, there would need to be some layoffs of workers and the dropping of unprofitable routes.

Lufthansa would then streamline Alitalia’s operations to complement other airlines in the Lufthansa Group which would certainly include Austrian Airlines and low-cost subsidiary Eurowings.

The German airlines also said that it would be prepared to pay up to 50€ million to cover losses when Alitalia moves from SkyTeam to the Star Alliance.

Lufthansa would only step in after drastic cuts were made

When speaking about the possibility of Lufthansa taking over Alitalia following their third-quarter results earlier this year Reuters quote chairman and chief executive officer of Lufthansa Carsten Spohr as saying,

“The technical restructuring of taking elements out, people out needs to be done by the current owner before we can see ourselves getting involved here.

“We are interested to look at a restructured new Alitalia if it makes sense to us and our shareholders, our staff and our customers due to the importance of the Italian market.”

The big temptation for Lufthansa is that Italy is one of the world’s biggest tourist destinations, attracting over 62 million international arriving passengers in 2018.

If the cuts are not made Lufthansa will walk away. Photo: Alitalia

My gut feeling here is that Lufthansa will walk away after the Italian government refuses to take the steps necessary for the airline to be profitable.

It’s not like they don’t know what they need to do it’s that no one wants to be the person to do it.

With this in mind and the European Union questioning Italy’s support for Alitalia I think they will have no option other than bankruptcy.

What do you think? Please let us know in the comments.