The Italian government is risking the wrath of the European Commission (EC) in agreeing to provide a €400 million ($440 million) bridge loan to struggling Alitalia after the airline failed to reach a bailout agreement with two potential investors by a Nov. 21 deadline. EC officials are in close contact with Rome concerning whether the proposed capital injection would run afoul of commission rules on state aid, European media report.
Italian state-run railway group Ferrovie dello Stato (FS) and Italian holding company Atlantia were unable to agree to terms demanded by the government as part of a €1 billion rescue scheme. As previously reported, FS has committed to a 40% stake and Atlantia to a 30% participation in the proposed deal.
U.S. major Delta Airlines continues to be committed to a €100 million investment in return for a 10% stake in a revitalized Alitalia. German airline Lufthansa is also interested but has insisted it will not take an equity stake in the resurrected carrier before it has gone through a complete restructuring. Lufthansa officials have been vocal in asserting that massive job cuts are a requirement for any potential investment in the carrier, if government officials choose the German carrier over Delta as a participant in the bailout.
Under EC state aid rules, loans are only permitted on terms that a private operator would have accepted under market conditions and provided that interventions do not confer an economic advantage on the beneficiary that is unavailable to rivals.
If Alitalia is unable to land further funds, the government may be forced to renationalize the carrier and pare the large workforce to make investment in Alitalia more attractive before putting the carrier back on the block. Such a move would draw the ire of unions that already are pressuring the government to make a deal that guarantees employment to the carrier’s workforce. Stefano Patuanelli, Italy’s economic development minister, stressed in a Nov. 20 interview with CNBC that terms of any agreement to reboot the carrier need to take job retention into account.
Alitalia is losing an estimated €700,000 per day and is expected to burn through cash reserves by year-end. The carrier already has tapped Rome for a €900 million bridge loan to remain aloft and has neither repaid the loan nor the attached €150 million interest. Alitalia was placed under extraordinary administration under Italian bankruptcy law in early May 2017.
Following a number of complaints by rival carriers charging that the loan was incompatible with state aid rules under the EC’s rescue and restructuring aid guidelines, the commission in January 2018 opened an in-depth investigation to assess whether Italy’s €900 million bridge loan constitutes state aid. To provide financing for Alitalia during the administration period, the Italian government granted a €600 million bridge loan to Alitalia in May 2017; in October 2017, the loan was increased by €300 million.
The commission also expressed concern that the loan’s term, extending from May 2017 until at least December 2018, exceeded the maximum duration of six months allowed for a rescue loan under the guidelines.
Adding to the fray, the U.S. Department of Transportation has approved a joint venture that includes Delta, Air France-KLM and Virgin Atlantic that is exclusive of Alitalia in light of the current disarray.
