Alitalia turnaround plan at risk after unions reject deal

The tentative agreement hammered out between Alitalia union leaders, stakeholders and government ministers was rejected in a ballot by union members on Monday evening. Antonio Calanni / AP Photo

The chief executive of Etihad Airways Group and vice-chairman of Alitalia, James Hogan, has warned that “all parties will lose” following a rejection of its latest turnaround plan by Italian union members.

Alitalia’s management had negotiated a settlement with the heads of Italy’s biggest labour unions which would have seen a refinancing package worth about €2 billion being made available to fund the struggling airline’s new, five-year business plan, but this involved implementing about €1bn worth of savings, including the laying off of around 1,600 staff. The plan also involves an expansion strategy aimed at growing revenues by about 30 per cent.

However, the tentative agreement hammered out between union leaders, stakeholders and government ministers was rejected in a ballot by union members on Monday evening.

Mr Hogan said that Etihad, which has owned 49 per cent of Alitalia since 2014, and other shareholders had “provided vast amounts of financial and commercial support during the past three years”.

He added that Etihad had “reaffirmed its strong commitment and principal willingness to support the airline” through the new proposed new funding, but that this had been dependent on the support of the unions.

“The rejection of this agreement in the staff ballot is deeply disappointing,” he said.

“As a minority shareholder in Alitalia we support the Board’s decision today to convene a shareholder’s meeting on April 27, to start preparing the procedures provided by the law.”

The next step for the airline, which employs 12,500 staff, could be the appointment of a special administrator to the company by the Italian government.

Etihad paid €560 million (Dh2.24 billion) for its stake in Alitalia in 2014, pledging to turn around an airline that had last made a profit in 1998.

Its investment was part of a wider €1.76bn recapitalisation of the airline agreed with its lenders that wiped out historic losses and provided a clean slate for the company, which is still majority (51 per cent) owned by Compagnia Aeria Italiana.

Etihad initially set a target for getting Alitalia back to profitability by this year, and its most recent accounts for 2015 showed that it managed to cut losses by €381m, or 65 per cent, to €199.1m on revenue of €3.3bn.

However, the protracted negotiations with unions over reform meant that its profitability target was recently pushed back to 2019.

In May last year, the company’s new chief executive Cramer Ball highlighted the investment that was being made right across the business, including €400m on aircraft upgrades, lounge upgrades, menu overhauls, training for thousands of staff and even new uniforms by designer Ettore Bilotta.

Chris Tarry, an aviation consultant at UK-based CTAIRA, said: “The fundamental problem is that there is always this view [in Italy] that the Italian government is going to come in and bail them out. Whilst that continues to be the case, it’s going to be very difficult to get the necessary alignment of objectives.

“Turnaround programmes are pretty easy – take out waste, generate more revenue – shrink, survive and grow. But you have to be able to implement. The challenge facing many managements of Alitalia - and many other airlines, too – have been that sometimes they are not capable of that.”

Jonathan Wober, an industry analyst with CAPA - Centre for Aviation, said that a “meaningful restructuring is not possible without union co-operation”.

“Whether Alitalia fails or not comes down to cashflow and this will depend on the shareholders’ willingness to provide yet more capital to fund losses. “That only seems likely if there is a clear and agreed path to restoring profit.”

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