Alitalia talks stall, bankruptcy approaches

Alitalia SpA has taken a step closer to the precipice of bankruptcy as Italian entrepreneur Roberto Colaninno's holding company, which had pledged an investment in the range of €150 million, along with his investor group abandoned talks to buy the flag carrier on account of union opposition.

After the break down of talks, Italian labour minister Maurizio Sacconi said that the situation is ''worrisome and getting worse'',  saying that Alitalia will not be able to operate much longer ''if there aren't new developments.''

The Italian government has been trying to hive off its stake in Alitalia for some time. The airline lost more than $3 million a day during in the first half, for over two years, and union opposition scuttled a takeover proposal from Air France- KLM Group in April 2008. In the same month, Silvio Berlusconi was elected prime minister when he pledged to organise an Italian bid to resurrect the airline, which now may be unscrambling.

Colaninno led bid proposed 3,250 job cuts, and planned to link wages to productivity gains that would have impacted the earnings of many at Alitalia, according to labour union leaders.

The other part of his plan proposed the sale of unprofitable assets, including Alitalia's cargo and maintenance businesses. The Italian government had given the unions a deadline that expired yesterday to reach an agreement, saying that Alitalia would fly out of cash this month, and be bankrupt without an accord.

Colaninno's Compagnia Aerea Italiana (CAI) investor group said in a statement that after seven days of meetings, ''there aren't conditions to continue negotiations.'' 

The unions ``don't seem to realize what a dramatic situation Alitalia is in,'' CAI said, while adding that it hasn't formally withdrawn its offer yet. There are no further talks scheduled.

Earlier this week, Fantozzi warned union representatives that he would not hesitate to terminate labour contracts and shut down Alitalia if talks fail. 

Fantozzi's message was echoed by Italian welfare minister Maurizio Sacconi, when he had expressed hope of reaching an agreement, saying that ''everyone is well aware that the only alternative is the failure of the company with all the consequences for the workers and the country in general." 

Augusto Fantozzi is yet to start firing workers, Sacconi said. Alitalia had declared insolvency a month ago, and Fantozzi is the government appointed overseer of the sale or liquidation of assets. He government says that there is no alternative to the CAI investor group's offer except bankruptcy, and expressed hope that the two sides would renew talks soon.

Italian transport minister said that the government would like to salvage the Alitalia talks, and that it had given time to the two parties, and would do its part when asked to intervene. 

Alitalia's nine main unions have been unable to forge a common position on the rescue plan, which has lead to separate negotiations with different labour groups. 

The Italian Pilots Association had issued a statement which warned of a ''direct impact on aviation safety'' if a single contract were to be signed for all Alitalia employees, including pilots, cabin crew and ground staff. Alitalia pilots have said that the CAI has proposed shedding 1,000 of 2,500 pilots.

Amongst other sticking points are proposed salary reductions for workers who remain in the reorganized company. The CAI plans to cut labour costs by 40 per cent, according to union officials. 

Labour leaders have met in Rome to try and come up with a common position capable of reviving the talks, even as differences remain substantial. 

After their meeting that lasted over two hours, the unions released a joint statement asking for an ''urgent'' meeting with Fantozzi, which they hoped will take place by Monday. However, the statement was silent about reviving talks with CAI.

The failure to sell Alitalia to Italian investors would be a substantial setback for Berlusconi's four-month-old government. 

Berlusconi had aided in scuttling the Air France – KLM offer, which had been negotiated by the previous government. He had called the offer ''arrogant'', while insisting that he could find an Italian buyer. The Alitalia's crisis could dog his government, as it is fueling tensions with unions. His previous government faced six general strikes in five years.

Members of the opposition have been expressing their disgust, saying that the scuttling of the deal with Air France – KLM was ''true political sabotage'', the negative consequences of which are now being played out.'

After taking over the reigns of the government in May 2008, Berlusconi government had appointed banking and financial services group Intesa Sanpaolo SpA  to draft a rescue plan and find investors in Alitalia.

Colaninno, the 65-year old head of scooter maker Piaggio & C. SpA, who is also the former chief of Telecom Italia SpA, formed the investor group CAI along with 15 partners, who promised a collective investment of over €1 billion ($1.4 billion) to buy the airline's flight business and merge it with rival Air One SpA. The loss making part of the airline was to be spun off into a separate company that would be liquidated by Fantozzi.