Will Air France-KLM be tempted - again?

Don't hold your breath, but it seems as though the on-off-on-off again marriage between Air-France-KLM and the cash-strapped airline Alitalia could be on again.

The Italian government in Rome has put together a package that has had the seal of approval from the European Commission, and Air-France-KLM has given signs that it could once again be tempted to invest.

The principal actors in this ongoing saga that would surely be the pride of any US soap opera writer are of course Italy's prime minister, Silvio Berlusconi, the country's troubled national carrier, Alitalia, the Franco-Dutch consortium Air-France-KLM, the European Commission, 16 new investors and lots, yes really LOTS of money.

Alitalia is a business investor's nightmare. And it has been for quite a while now. It has a debt of around €1.2 billion, loses more than €1 million a day and hasn’t notched up an annual profit since 1999. Its shares have been suspended since June and it has lost a cool €400 million just since the beginning of this year.

If those figures were not bad enough, it also has a fleet of notoriously ageing, gas-guzzling aircraft and a 20,000 plus workforce that seems to spend as much time on the ground striking as it does in the air flying.

Little wonder then that the government in Rome has been so keen to offload it and has been looking for a deal to save it for the best part of the last 18 months.

In fact there have been two previous attempts to sell it. Both of them involved Air France-KLM and both failed.

The most recent one was in April, when the Franco-Dutch group threw in the towel frustrated over unions' refusals to accept proposed job losses. It had also discovered that the unions were still apparently trying to seal a deal with an Italian buyer – not that there was any sign at the time of one able to cough up the necessary cash.

The solution now on the table is perhaps a lesson on how to do business Italian style, as the government of Italy's prime minister, Silvio Berlusconi, has come up with a rescue package extraordinaire - as promised in his electoral campaign earlier this year.

The latest plan would see the existing airline broken up and bankruptcy declared for those sections that are losing the most money.

The Italian government has already pushed through changes in its bankruptcy laws this week to allow the rescue operation to take place. It involves dismantling the old company and creating two new ones.

One would have the backing of 16 domestic investors, a group put together by the Italian bank, Intesa SanPaolo. The other would take on all the debt and be put into liquidation.

There would be job losses of around 7,000 or 40 per cent of the workforce, although the government is hoping that any layoffs could be absorbed by other state-owned companies.

The new company that would rise from the ashes of Alitalia, would become a regional airline serving mainly southern Europe and would need investors to cough up a whopping €1 billion.

This is where Air France-KLM could come in. There is an alternative - the German carrier Lufthansa - but the Franco-Dutch group has always been the most likely possible partner according to industry insiders.

And at the moment it appears as though the company could be persuaded up the aisle - yet again - after the release of a statement on Thursday in which it announced that it would be "willing to take a minority stake in the new company of investors currently being put together by Intesa SanPaolo if that package was confirmed."

In other words if it sees that there's a realistic chance of its investment in the new company returning a profit.

Berlusconi's solution even has the thumbs up from the EU transport commissioner, Antonio Tajani, because it apparently it doesn't contravene stringent EU regulations of a country offering state support to a carrier. And instead it's being welcomed as a way to boost competition among airlines within Europe.

If all goes to plan and hands are shaken, contracts signed and the deal done, the "new" airline could be in operation by next month.

So, will Air France-KLM be tempted again?

Don't hold your breath too long, but it looks as though it's on the cards.

When divorce comes before marriage

Air France-KLM has thrown in the towel in its attempt to take over Italy’s strap-cashed national carrier Alitalia.

And yet again it’s for the last time – apparently.

On Monday the Franco-Dutch group released a short statement saying that as far as it was concerned the bid in its current form, was longer legally valid.

It was a response to a request from Alitalia for the legal situation to be made clear after the last round of talks in the soap opera to beat all others collapsed three weeks ago.

At the beginning of April the Franco-Dutch group walked away from the negotiating table frustrated over unions' refusals to accept proposed job losses. It had also discovered that the unions were still apparently trying to seal a deal with an Italian buyer – not that there was a sign of one able to cough up the necessary cash.

So Alitalia needs a buyer – again. And desperately.

By its own calculations it reckons it needs €750 million by June to keep its fleet of ageing, gas-guzzling aircraft in the air and its workforce of 20,000 plus busy.

Even though the Italian government might want to bail it out, European Union legislation prevents it from doing so, unless there are good commercial grounds. That would be hard for Rome to justify as Alitalia is crippled with €1.2 billion worth of debt and hasn’t actually turned an annual profit since 2002.

It’ll be up to Italy’s new government under Silvio Berlusconi, which takes over power next month, to find a solution. Berlusconi is known to be in favour of trying to put together an “Italian option” involving some of the country’s banks with perhaps the Russian airline, Aeroflot, holding a minority stake.

But even by his showman-like standards it would take a very large rabbit pulled from an enormous hat to really save the day. And Alitalia has been there just a little too often before.

The Italian government has been looking around for a potential buyer for its 49.9 per cent stake in the company for more than a year.

The Air France-KLM offer was generally considered to be the only viable one that would allow the Italian flag carrier to return to profitable growth quickly

While it might be curtains for the bid that was on the table, it doesn’t mean that Air France cannot be enticed to make a new one, and for many that’s the only hope Alitalia realistically has of surviving.

Industry experts say that the airline has weeks and at best a few months before it finally goes belly up and it's presently losing money at the rate of more than €1 million a day.

Up in the air - again

It has been an almost never ending story ever since the Italian government started looking around for a buyer to bail out the country’s troubled state airline, Alitalia.

But it looks as though the end is in sight – yet again. How often those words have been said in recent months does not bear repeating. Unhappily it’s unlikely to be the outcome Rome would have wished for.

That’s because Air France-KLM has abandoned its plans to takeover the airline.

Talks collapsed on Wednesday when Air France boss, Jean-Cyril Spinetta, walked away from the negotiating table after discovering that Alitalia’s unions were trying to seal a deal with an Italian company instead.

The French-Dutch group’s offer of €139 million would have meant the loss of 2,100 jobs, the phasing out of Alitalia’s cargo service and part of its maintenance facilities – all of which would have needed the approval of the unions.

When they refused to budge, Spinetta threw in the towel saying that the impasse was regrettable especially as far as he (and many others) were concerned, as the takeover represented the only long-term chance for the airline’s survival.

Alitalia has a debt of around €1.2 billion, loses more than €1 million a day and hasn’t notched up an annual profit since 2002. Just to add to the woes, the company also has a fleet of ageing, gas-guzzling aircraft and a 20,000 plus workforce that seems to spend just as much time on the ground striking as it does in the air flying

The Italian government had been looking around for a potential buyer for its 49.9 per cent stake in the company for more than a year until it finally agreed to the Air France offer.

Before the talks collapsed, the Italian economics minister, Tommaso Padoa-Schioppa, had said that the Air France deal was the only lifeline for Alitalia. He had warned beforehand that if the planned purchase failed the only alternative would be to put the airline into emergency administration, with the likely outcome that any restructuring would be even more painful than the consequences of an Air France takeover.

The double whammy was completed on Wednesday when Maurizio Prato resigned. He was the chairman of Alitalia and the man Rome had charged with finding a buyer.

The whole mess leaves the airline even closer to the brink of bankruptcy less than two weeks ahead of parliamentary elections and its shares have been suspended.

One of the principle opponents of the government's sale of Alitalia (to a non-Italian company) has been prime ministerial candidate Silvio Berlusconi.

He and the unions could now well get their wish, with Alitalia indeed not falling into foreign ownership - but instead going under completely.

Waiting in the wings

If the recent rumours of a blossoming love affair between the French president, Nicolas Sarkozy, and the Italian-born former top model Carla Bruni, prove to have any substance, they won’t be the only Franco-Italian couple to be hitting the headlines this week.

Air France – KLM has outlined its offer to buy Italy’s troubled national carrier Alitalia. A daring move perhaps as when it first announced that it might be making a firm offer back in late November, shares in the Franco-Dutch airline fell by more than six per cent – their biggest drop in more than three years.

But that apparently hasn’t put off the company’s interest in proposing a deal which would see it inject around €750 million into the virtually bankrupt Italian flag carrier.

If successful it would involve a share swap, while allowing the Italian government to retain a stake in the new company.

The attraction for Air France has to be control of the profitable Milan-Rome route and the likelihood of encouraging Italian passengers to use its Paris and Amsterdam hubs for long haul flights. But nonetheless you have to admire the business nerve of any company willing to take on the risk of rescuing the Italian airline as the statistics speak for themselves.

Alitalia has a debt of around €1.2 billion, loses more than €1 million a day and hasn’t notched up an annual profit since 2002. And as if those figures were not bad enough, it also has a fleet of notoriously ageing, gas-guzzling aircraft and a 20,000 plus workforce that seems to spend as much time on the ground striking as it does in the air flying. Little wonder then that the government is so keen to offload it.

And it’s not the first time this year Rome has tried to find a buyer. A previous attempt failed after all the bidders withdrew, mainly over concerns as to the airline’s precarious financial situation.

Furthermore any potential buyer can hardly have been encouraged by comments either from the chairman describing Alitalia as “comatose” or the Italian prime minister, Romano Prodi, remarking that the company was “completely out of control.”

This will not be the first time Air France has made overtures towards Alitalia. It first started talks of a merger back in June 2001 but abandoned them opting instead to join forces with KLM three years later.

By anyone’s reckoning turning around the Italian carrier will be a hard task. But many economists rate Air France – KLM as the best bet for a long-term restructuring of Alitalia as it has far deeper pockets than either of its main competitors.

The financial risks involved could be considerable for all sides involved, but time is running out and Rome has set a Christmas deadline for the sale.

But there again a decision was due last week, was delayed – again. So expect more news this week for a marriage not quite made in heaven – perhaps.