News Category: Debt Management
It appears that the failing Italian airline, Alitalia, is almost bankrupt. Today, the administrator of the company published advertisements in Italian and UK newspapers seeking investors to save the long struggling airline. Alitalia is estimated to be losing over £1.5m per day. This latest last-ditch attempt to attract investors follows should be failed negotiations with the see a light consortium which collapsed last week, following union intervention. The unions were against a proposed 3000 job cuts. The national civil aviation authority (ENAC) met with the company's executives on Monday to discuss the potential insolvency of the company. It is possible that the company will lose its licence to fly within days. The airline cancelled flights last week and it is reported that the company could not afford the escalating fuel costs. The imminent collapse follows the spectacular bankruptcy of XL airlines the previous week.
Alitalia is the national airline of Italy and was established in 1946. The government still retains a 49.9% shareholding in the airline and has thrown billions of euros at the company in an attempt to save it from administration and liquidation. The government provided a €300 million emergency loan in April, but this appears to have not been enough to save redundancies of the 4000 employees. The CAI proposal was that Alitalia would merge with a one, Italy's second largest airline. This would entail a large redundancy programme which the unions objected to. Following intense negotiations between the government and the unions, talks collapsed as deadlines approached and passed. There were nine main unions involved in the negotiations, each representing different labour groups. The reorganisation of the company would mean a 40% cut in labour costs due to salary reductions. Despite pilots backing the cuts, other unions refused to support the proposed solution.
The rescue package was spearheaded by Berlusconi and will represent a major political setback if the airline does indeed collapse into bankruptcy. Other attempts included amending Italy's anti-trust rules and bankruptcy laws. This would have enabled the company to the split into two, with the troubled portion puts under the protection of bankruptcy laws, while the profitable area continues as a profitable going concern. The interference in the operational running of the airline by successive Italian governments, has reduced its market share over the last 20 years as leaner and more flexible low-cost carriers have stolen valuable business from them.
The underlying problem is the escalating and volatile global fuel prices which is causing havoc in the airline industry. As consumers cut back on holiday spending and business travellers are taking less trips, planes are becoming increasingly expensive to maintain and margins have been massively eroded. High fuel prices and lower demand have caused huge cash flow problems all the carrier which, like most cash hungry businesses is struggling to raise additional business finance, as the credit crunch continues to bite.