Battle for Alitalia Heats Up

Takeover campaigns for Alitalia, Italy’s national air carrier were stepped up by the rival bidders Air France-KLM and Italy’s Air One on Monday. Both the rivals are striving to gain political support from the Italian government which is divided over the sale of its 49.9 per cent stake in the loss-making Alitalia.

Air France-KLM announced today that it would invest a minimum of €750 million (£535 million) into Alitalia. The Franco-Dutch airline revealed details of their offer and said that it would acquire the Alitialia group via a share swap and purchase of all of Alitalia's convertible bonds.

The cash would be introduced in the form of a capital increase and would be used to support a re-launch of the airline with new cabin configurations and ground services.
Air France-KLM said that Alitalia would remain a "strong national flag carrier with world coverage."

Air France-KLM further stated that it would not add redundancies to Alitalia’s current plan which is reported to envisage 1,700 job cuts. They added that fleet renewal would be its top priority after the acquisition.

This announcement from Air France-KLM have come in the wake of Saturday's statement from rival Air One in which the independent Italian carrier said that it had firm offers for 90 new Airbus A320 aircraft that would replace 77 ageing MD82 aircraft used by Alitalia on its domestic and European routes. Air One added that it would also acquire 20 long-haul aircraft and would make Alitalia Europe's fourth-largest carrier.

Air One has already revealed that it would inject €1bn and invest over €4bn in a new fleet. It is reported to have offered one euro cent for each Alitalia share.

Italian entrepreneur Carlo Toto owned AP Holding which is the parent of Air One, secured the support last week of Luca Cordero di Montezemolo, head of Cofindustria, the Italian employers confederation. Air One has ridden a tide of nationalist sentiment wanting to keep Alitalia in Italian hands with the trade unions being wary of large-scale job losses and northern politicians fearing Milan’s descent.

These rival claims from Air France-KLM and Air One have sprung up in wake of Tuesday’s board meeting at Alitalia, where the company is expected to make its recommendation to the government and choose its savior.

The enthusiasm for a domestic bidder is tempered with concern that AP lacks the financial authority to support the rescue of Alitalia which has €1.2 billion in debt and is losing €1 million a day.

Air One, however, claims the support of four banks, including Intesa Sanpaolo, Nomura, Morgan Stanley and Goldman Sachs. On the other hand, the Air France-KLM bid offers Alitalia the protective umbrella of Europe's biggest airline grouping.

Air France-KLM’s offer is the more attractive of the two for the prime minister, Romano Prodi, and the finance minister Tommaso Padoa-Schioppa. The chairman of alitalia board, Maurizio Prato, has also spoken in favour of Air France-KLM

Alitalia shares fell sharply on Friday and slid again at the open on Monday before trading was suspended. The shares of Air France-KLM were also trading some 2 per cent lower on Monday.