Alitalia: The brand that just won’t die
The 'Draghi factor' helps Italy's state airline didge EU regulators.
Italia Trasporto Aereo S.p.A. has a problem.
ITA will start flying on October 15 as Italy’s new flag carrier, replacing a bankrupt Alitalia, but hardly anyone has heard of it. That’s not the case for Alitalia — a storied brand, albeit tarnished by years of labor troubles, inefficiency and serial bankruptcies. Which is why the head of ITA Fabio Lazzerini (a former Alitalia man) plans to buy the brand in a tender the Italian government announced on Friday.
But if ITA is rebadged as Alitalia, that raises the question of just how different the new airline is from the old one.
It’s not just the name. ITA will be flying the old airline’s aircraft, using many of its slots in Milan and Rome, and be staffed by the slimmed-down remnants of the old carrier’s workforce.
That’s not the way ITA is being spun by Brussels and Rome. The European Commission determined last week that ITA and Alitalia are separate entities — so-called economic discontinuity. As a result, the new company is not liable for €900 million in illegal state aid received by its predecessor, which also allows Rome to inject €1.35 billion of fresh money into the new company.
Brussels managed to find a “digestible compromise” between Rome’s requests and a strict application of the bloc’s state aid rules, said Tommaso Valletti, who served as DG Comp’s former chief economist when the Alitalia probe was launched in 2018. He also acknowledged that “the decision leaves a bitter taste in the mouth” as “money will be never paid pack, nor will the past competition distortion be rectified.”
Valletti noted that, as with many competition decisions, the choice of timing has a political dimension. A win on Alitalia is important for Italian Prime Minister Mario Draghi, a respected former central banker who is seen as crucial in stabilizing Italy.
“In the art of compromise, the Draghi factor certainly helps,” Valletti said.
The Alitalia rescue was decided by the previous government led by the 5Stars’ Giuseppe Conte, whose initial plan didn’t meet DG COMP’s expectations. After Draghi took over, a series of meetings between his ministers and Competition Commissioner Margrethe Vestager led to a “common understanding” on what was needed to make sure that ITA and Alitalia are separate companies.
“The rules on economic continuity, especially as interpreted during the crisis, are too vague and the outcome of cases unpredictable,” said Massimo Merola, a state aid law professor at the College of Europe in Bruges and partner at law firm BonelliErede.
It’s not the first time the Commission has approved a transformation for Alitalia.
In 2008, the Commission concluded there was no continuity between a bankrupt Alitalia and its successor, Compagnia Aerea Italiana (CAI), a consortium of private investors convinced by Prime Minister Silvio Berlusconi to rescue the struggling carrier. Brussels also found there was “economic discontinuity” between CAI and Alitalia, which allowed the new entity to avoid repaying €300 million of illegal aid received by Alitalia.
The Commission was persuaded that CAI — flying under the Alitalia brand — would be a different, slimmed down and more profitable entity. It didn’t work out that way. Hammered by competition from low-cost carriers, saddled with unprofitable routes and an expensive and inefficient workforce, the carrier burned through billions in bailouts and loans.
What’s in a name?
While ITA has been desperate to prove to commissioners in Brussels that it’s a separate entity from its predecessor, it’s a different story when it comes to the customer. Just a few weeks before its maiden flight, search engine results for “ITA” bring up everything from the Italian Trade Agency to Amsterdam’s International Theater.
“Alitalia is very well-known,” said Andrea Giuricin, a transport economics professor at Milan’s Bicocca university. “When you try to search for ITA, of course, no one knows what it is. It’s not easy to sell tickets.”
That makes the Alitalia brand crucial for the new company. ITA chief Lazzerini said he’d “do everything” to win the auction, which starts at €290 million.
Only Ryanair publicly showed any interest — which it has since withdrawn. Industry figures say there’s been little appetite among competitors for the troubled brand — although reports say Italian ministerial officials are expecting some interest.
Alitalia even tried to anticipate the risk that its brand could be sold to disrespectful bidders. The call for tenders makes clear that bidders should not use the brand “for activities or forms of communication that may prejudice the image of any Member State of the European Union, in the economic, cultural, tourist and transport fields.”
Only companies “having a net worth … of not less than €200 million and holding air transport operating licenses or air operator certifications” are allowed to bid.
Potentially more problematic than the open tender, according to London School of Economics competition law professor, Pablo Ibañez Colomo, is the way behind-closed-doors negotiations will see ITA take over a large portion of Alitalia’s slots; some 85 percent of routes held by Alitalia at Milan’s Linate Airport and 43 percent of those at Rome Fiumicino. ITA will also start life with 52 of Alitalia’s aircraft.
It’s not been made public how much ITA paid its predecessor for the assets, but the new company said in July that it had raised €700 million to cover such costs.
But transactions done without a tender could open the Commission’s decision to challenges, said Ibañez Colomo.
“It’s always been one of the aspects that I found trickier, or less convincing in this sort of circumstance. Because, you could say, you’re basically getting the good bits of a company, or [its] valuable assets … without any of the liabilities,” Ibañez Colomo said.
There are some differences between ITA and Alitalia.
ITA is barred from taking over the old airline’s loyalty scheme, and its workforce will be much smaller. Compared with Alitalia’s 11,000 employees, its successor will only take on 2,800 this year, with plans to bring that up to 5,750 next year.
That has angered unions, which are also furious with the Commission for allowing the creation of a new airline not bound by the old carrier’s contracts.
“Alitalia has traditionally been leading the way in decent working conditions and levels of pay in line with other European flag carriers,” Livia Spera, secretary general of the European Transport Workers’ Federation, wrote in a letter to the Commission.
“What ITA is offering is an 18th-century way of managing workers,” she said in a call. Under the new contracts, which are still being drawn up, employees are set to see a 27 percent salary cut, she said.
Even though there’s some slimming, Riccardo Magi, an Italian lawmaker and head of More Europe, a centrist and pro-market party, was skeptical whether ITA flying in the guise of Alitalia can be saved from its predecessor’s fate.
“Despite the trick consisting in changing legal entities, Alitalia doesn’t have the capacity to be competitive,” he said, predicting that ITA will continue benefiting from state support in the future.
Pietro Lombardi contributed reporting.
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