Alitalia jobs would be cut in deal, Etihad Airways chief says

Loss-making Italian flag carrier Alitalia must restructure if it is to survive, Etihad Airways chief James Hogan warned as the two airlines remained locked in negotiations over a potential takeover.

Alitalia is losing €1.5 million a day and is in €1 billion debt, again risks running out of money by August if a cash-rich partner cannot be found. Max Rossi / Reuters

As the Etihad Airways and Alitalia chiefs reached the final stages of negotiations over a potential tie-up, Etihad’s James Hogan warned that his company would place a strong emphasis on cost-cutting.

The Abu Dhabi airline is engaged in final talks with Alitalia management in exchange for taking a stake of up to 49 per cent in the Italian airline after Alitalia announced on Friday that its board of directors had given its backing to a deal.

A deal is expected to be complete by July 15.

Etihad is demanding downsizing measures and thousands of job losses at the loss-making airline – just as it did when it took equity stakes in Air Serbia and Air Seychelles – Mr Hogan, Etihad's president and chief executive, told The National in Los Angeles last week.

“This is about restructuring and moving a business to a sustainable profitability, and if you don’t restructure you won’t survive,” Mr Hogan said.

“Within [the letter I sent to Alitalia regarding our investment] there were a number of criteria that we were seeking as investors moving forward, and one of them was obviously the manpower sizing,” he added. “We’re restructuring an airline. We restructured Air Serbia. We restructured Air Seychelles. And staff came out of both those airlines.”

Mr Hogan declined to say exactly how many jobs would be lost at Alitalia, but the Italian airline’s chief executive, Gabriele Del Torchio, is reported to have put the figure at 2,200 of the carrier’s 14,000 staff.

Other conditions are thought to include cutting loss-making routes, negotiating new employment contracts with highly paid staff, and reducing airport costs.

According to reports quoting the Italian transport minister, Maurizio Lupi, under the terms of the potential deal, Etihad is likely to invest up to €1.25 billion (Dh6.22bn) in Alitalia over four years. Of that, €560 million would be spent on Alitalia shares, while the remaining €690m would be spent on upgrading Alitalia’s airplanes, interiors and training staff.

“Italy is a major market in its own right. It’s a destination. Already our Rome flight, which we launch next month, is growing at the pre-loads of about 70 per cent to 80 per cent,” Mr Hogan said. “And when you start looking at how we build the airberlin and the Alitalia network together, how we work with Air France-KLM, there’s no stronger grouping of airlines. Strategically, it’s game changing.”

The Rome route begins on July 15 – the same day by which Etihad and Alitalia are expected to have sealed their deal.

Last year, Alitalia received a €500m government-facilitated rescue package. However, the company, which is losing €1.5m a day and is in debt to the tune of €1bn, again risks running out of cash by August if a cash-rich partner cannot be found.

“Arab airlines do not face labour angst, so this will be an incredible challenge to face and overcome. There will be massive opposition to job cuts in Italy at Alitalia, but Alitalia’s management knows that this is the price for Etihad’s white-knight assistance. So arguably, Etihad could well shove that responsibility to Alitalia to deal with,” said Saj Ahmad, the chief analyst at StrategicAero Research.

“In terms of size, Etihad is not at all overexposed in Europe, but some would argue financially that with [its 29.2 per cent stake in] airberlin, Etihad is already overexposed,” said Will Horton, a senior analyst at the Centre for Aviation. “But this is a long-term agenda and Etihad has the backing to do it.”

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