Italy pulls out stops to grant loan to Alitalia - update

Air France-KLM’s deal to buy Alitalia came apart earlier this month over union opposition, but the French carrier formally withdrew its offer late on Monday -- its strongest signal yet that it has little intention of restarting talks. That gives Silvio Berlusconi his first big headache since winning last week’s election -- finding a way to funnel cash to the carrier without angering the European Commission, which has threatened court action over any further state aid for Alitalia. Outgoing Prime Minister Romano Prodi held talks on Tuesday with top officials and plans a cabinet meeting at 1630 GMT to discuss a bridge loan to keep Alitalia afloat until its fate is settled, a government source said. Prodi’s office in a statement confirmed a cabinet meeting to discuss the “Alitalia question.” Shares of the state-controlled airline were suspended from trade in Milan.

Italian media say the loan could be worth about €150 million and business daily Il Sole 24 Ore said reasons of “public order” would be cited to defend it from EU objections. Outgoing Industry Minister Pierluigi Bersani said the loan would be an “emergency measure” and in line with European rules. Berlusconi’s spokesman said Prodi’s government must ensure Alitalia had enough funds until an alternative solution to Air France-KLM’s deal is found.


“SERIOUS AND DAMAGING”
But the European Commission warned that any decision on aid without approval from Brussels first could end up in court. “We are ready to give a quick green or red light to any loan, but what would be very serious and very damaging would be if Italy decided to go ahead with the loan first and then decide to inform us,” an official familiar with the matter said. “But if Italy takes this road or cannot justify the loan, then make no mistake the Commission will come down very hard and will move as quick as possible.” A Commission spokesman told a briefing that it had not been informed of any decision to give further aid to Alitalia.

Analysts had considered the French deal Alitalia’s most viable option of avoiding bankruptcy, despite speculation of a rival bid by an Italian consortium or Russian airline Aeroflot. Quoting sources at Air France headquarters in Paris, Le Monde said the company had definitively given up on buying Alitalia due to economic rather than political reasons. It cited Alitalia’s exposure to high oil costs as of particular concern. It said Alitalia had not hedged its oil purchases and that the price of aviation fuel had risen almost 35% since Air France drew up its original takeover plan in February.

Berlusconi has talked of a bid by an Italian consortium, but so far none has emerged. He also suggested talks with Aeroflot after hosting Russian President Vladimir Putin last week but the airline has sounded cautious on its interest. “Aeroflot treats with understanding an instruction given by President Vladimir Putin,” an Aeroflot spokesman told Reuters. “We are expecting the Italian side to invite us to talks. However, Aeroflot will be guided (in its decision making) ...purely by pragmatic reasons and interests of investors.” Aeroflot briefly expressed interest in buying Alitalia last year before withdrawing from the field.

Alitalia, which says it needs at least €750 million ($1.19 billion) pumped into it by mid-year to keep flying, risks having its license to fly revoked by Italy’s civil aviation authority unless it details plans for fresh funding soon. Alitalia convened its unions for a Thursday meeting, a union source said.

AEROFLOT RECONSIDER TO BUYING ALITALIA
Russia’s air carrier Aeroflot could reconsider buying the Italian government’s 49.9% stake in cash-strapped Alitalia, although the airline could have its license revoked, Aeroflot’s deputy director said Tuesday.

Aeroflot earlier took part in the tender to buy the stake, but the Alitalia management considered a bid by Air France-KLM more feasible. The French carrier announced Monday it was pulling out of the negotiations over a deadlock with trade unions. At a meeting between Russia’s incumbent President Vladimir Putin and Italian prime minister-elect Silvio Berlusconi in Sardinia last weekend, Putin signaled that Aeroflot might be interested in continuing negotiations on the takeover. “The Russian president gave instructions that the talks be resumed. It is most likely that the Italian side after the Sardinia meeting put some new ideas forward for joint discussion,” Lev Koshlyakov said.

Meanwhile, Vito Riggio, head of Italy’s civil aviation agency ENAC, said on Tuesday the agency could revoke the carrier’s license due to its existing financial problems. During the meeting on April 18, Putin said the situation surrounding the Italian airline is complicated. “Debts need to be paid, the company has to be made profitable, and talks have to be held with the government and trade union,” he said.

 
ITALIAN BID IN WEEKS
Italian prime minister-elect Silvio Berlusconi said on Wednesday an Italian business group plus banks and airlines -- none of whom were named -- would make a bid for Alitalia after a few weeks of due diligence.

But he told Italian radio that a home-grown takeover would still mean “painful” reductions in personnel at the loss-making airline, where trade unions rejected a bid by Air France-KLM because it involved job cuts.

Italy’s outgoing center-left government decided late on Tuesday -- in consultation with Berlusconi, who takes office next month -- to give the airline a €300 million ($475 million) emergency bridge loan to keep it flying. “This has given Alitalia the means to survive a few months, time which will be used by a group of Italian entrepreneurs, aided by banks, professionals and airlines, to study Alitalia’s accounts,” Berlusconi told an Italian radio station. “After due diligence of three, four or five weeks, this new group will present a binding offer and take over the running of Alitalia, which will involve a painful reduction in personnel,” said the 71-year-old media mogul. (Reuters, Ria Novosti)