Italy stuck with Alitalia as Lufthansa, Atlantia balk

Bloomberg

Italy risked failure in its latest attempt to bail out bankrupt airline Alitalia, after two companies involved in the rescue got cold feet, raising the prospect of at least a temporary nationalisation of the carrier.
State rail operator Ferrovie dello Stato Italiane SpA (FS) said that conditions aren’t in place to form a group to save the airline from liquidation. That followed a similar statement from the Benetton family’s Atlantia SpA. A third potential partner, Deutsche Lufthansa AG, isn’t ready to commit equity, FS said.
The prospect of a failed agreement came before deadline for a binding investment plan. The Rome-based government set the timetable in a bid to resolve a decade-long headache and save jobs at the carrier, which has been estimated to lose about 700,000 euros ($789,000) a day and hasn’t posted a profit for at least 15 years.
The Rome-based company is also burning through a 900 million-euro state loan while seeking to compete in a market where fares are falling and consolidation has left it dwarfed by rivals. The government is readying 350 million euros in bridge financing to keep Alitalia flying in the meantime.

Biggest Carrier
While US-based Delta Air Lines Inc had been seen as the most likely foreign partner, Lufthansa, Europe’s biggest airline, entered talks last month to invest in Alitalia. The company reiterated its interest, though the German carrier’s plan would involve significant job cuts and a reduction in flights.
Italy’s Economic Development Minister Stefano Patuanelli told CNBC in an interview that Alitalia “needs a turnaround that takes into account workers and their jobs.” The minister said earlier that March of next year remains the final deadline to close a deal for the carrier.
Lufthansa’s patchy M&A record has investors wary of it embarking on another shopping spree, adding pressure on CEO Carsten Spohr to get the Italian government to meet his demands.
Lufthansa has struggled to integrate Air Berlin into its Eurowings group, leading to deep losses earlier this year.
Lufthansa wants Alitalia transformed into a profitable new company before making an equity investment, according to people familiar with the matter. Company executives also want Italy’s government to handle negotiations with unions, they said.
Italy could temporarily nationalise Alitalia if no adequate offer materialises, daily la Repubblica reported. A nationalisation could run for 12 months, allowing the government to manage redundancies before control passes to group including a foreign partner.
As a last recourse, the company’s administrators could also allow Alitalia to fail and liquidate its assets to pay off debts.