Air France-KLM sought to win the backing of Italian labor unions as it announced a conditional bid for ailing Alitalia on Monday.
The Franco-Dutch airline said after a board meeting that it had decided to go ahead with a formal offer for the struggling Italian carrier following months of negotiations -- but only if the strike-prone airline’s unions grant it their blessing. It said the “commitment of the trade unions” to the deal would be high on a list of several conditions attached to the offer, which would be presented on Mar. 14. “The integration of Alitalia in the Air France-KLM group will reinforce its position as a European leader and also will allow Alitalia to recover its status of being a national leader,” it said in a statement. A takeover of the near bankrupt Alitalia is expected to result in 1,700 job losses, about 15% of the workforce, according to both airlines. It would consolidate Air France-KLM’s position as the largest airline in Europe at a time when network carriers are under pressure from low-cost rivals and high oil prices.
However Alitalia’s future has become a hot issue in upcoming Italian elections. A takeover would end the 62-year independence of one Italy’s most distinctive global brands, which is losing €1 million a day. “We will look closely at conditions in which Alitalia would be integrated, the exact scope of the acquisition and the way unions and governments react,” said Bruno de la Rochebrochart, a Paris-based analyst at brokerage Raymond James.
Air France-KLM’s investors fear it will become bogged down in Italian politics, echoing the fate of previous high-profile Franco-Italian industrial deals in energy. Air France-KLM shares fell 4.4% to €15.732. They have underperformed European rivals Lufthansa and British Airways, by 18% and 16% this year respectively. Alitalia’s stock, which once soared above €25, slipped 1.4% to €0.5863. Alitalia is worth €813 million at latest prices.
Alitalia’s unions had always expected Air France-KLM to propose an offer conditional on striking an agreement with them, said an official with Filt-Cgil, one of the airline’s major labor groups. But they want to see details of the French carrier’s plans before deciding anything, he said. “It all depends on the contents of the offer,” he said. “What we cannot accept is a take-it-or-leave-it attitude.” The unions have said they are worried about the future of Alitalia’s troubled ground services unit, AZ Servizi, which the carrier has been trying to persuade Air France-KLM to buy along with the rest of the company.
For decades Alitalia symbolized the post-war success of one of the world’s most visited countries, as aircraft sporting its A-shaped logo transported Popes and divas around the globe. Now Italy’s national airline is on sale to avoid bankruptcy, torn apart by political interference and five years of losses. It urgently needs a buyer to avoid running out of cash after the European Union banned further state aid. Air France-KLM entered exclusive negotiations late last year after snubbing an earlier Italian government auction for the 49.9% of the airline held by the Italian state, saying the rules were too restrictive. Lured by the thriving north Italian business market, it relented and began refining a business plan with Alitalia with a target of reaching a decision by mid-March. Complicating the talks, Italian Prime Minister Romano Prodi, who backs the merger, resigned in January. The move triggered an election due in April, weeks after the deadline for a deal.
Last week Silvio Berlusconi, the centre-right candidate for prime minister who leads in opinion polls, rattled Alitalia shares lower when he said he opposed the Air France-KLM deal. Berlusconi later toned down his opposition but said he still prefers an Italian solution and the fate of the preferred carrier for Papal trips has become an emotional election issue. Many politicians say Alitalia should remain Italian. Italy’s administrative Appeals Court is due to hear an appeal on Tuesday by domestic Italian rival Air One which hopes to put an end to the talks between Paris and Rome.
Air France-KLM is the world’s largest airline by revenues, but looks set to lose that crown as Northwest Airlines and Delta Air Lines edge towards a merger deal in the United States. (Reuters)