Following the loss of a key contract for our military charter business, it became impossible for ATA to continue operations.

Alitalia Board Meets After Talks Fail
Thursday April 3, 10:07 am ET
By Ariel David and Colleen Barry, Associated Press Writers
Alitalia Holds Emergency Board Meeting After Air France-KLM Quits Talks About Buying Airline

ROME (AP) -- Alitalia edged closer to bankruptcy protection on Thursday after Air France-KLM abruptly broke off talks to buy the struggling national airline and Alitalia's chairman of seven months resigned in frustration.

ADVERTISEMENT
Even if the airline sought bankruptcy protection, it could continue flying while it developed a financial reorganization plan.

The Alitalia board convened an emergency meeting at its headquarters, where about 300 Alitalia workers gathered outside chanting "We want Air France" and demanding the return of chairman Maurizio Prato.

The government, meanwhile, said it would try to determine whether there was still a chance to coax Air France-KLM and unions back to the bargaining table. Barring that, analysts said bankruptcy protection appeared the most likely outcome.

Alitalia's unions, which presented proposals that Air France-KLM chairman Jean-Cyril Spinetta said were "incompatible" with plans to return the airline quickly to profitability, planned a news conference for later Thursday. Spinetta had made his company's take over of Alitalia conditional on the acceptance of Alitalia's strike-prone unions.

Both sides, however, appeared to leave open the possibility of a return to talks in their statements Wednesday night -- although how that would be achieved is unclear at this point.

In a measure of the severity of the crisis, the Milan Stock Exchange suspended the company's shares, which have been on a bumpy ride, regularly swinging beyond the exchange's 10-percent limit in both directions, in recent weeks as the sale of Alitalia has become embroiled in parliamentary elections, scheduled April 13-14.

Opposition leader and former Premier Silvio Berlusconi, who has been leading in the polls, has said he was gathering a group of investors to make an alternative deal, but he hasn't publicly named them. Some of his remarks have brought the scrutiny of Italy's stock market regulator.

Economics Minister Tommaso Padoa-Schioppa told a parliamentary committee on Wednesday that if the Air France-KLM plan failed, bankruptcy protection would be the only solution. He said the time for an alternative buyer had passed.

Under terms of the law tightened after the 2003 failure of dairy giant Parmalat, a government-appointed administrator would be named to run Alitalia, which would be granted protection from its creditors and suppliers, but only under terms of a business plan guaranteeing the company's return to profitability with radical restructuring. The plan, which must be written within 180 days, could cover a period of years.

"For Alitalia, this would be preceded by a very painful and very quick restructuring," said Oliviero Baccelli, an airline and transport analyst at Milan's Bocconi University. It could include such measures opposed by unions as halving the fleet.

Unions, which have shown little stomach for cuts, would have to go along because at the point that bankruptcy protection becomes an option, as the only other alternative would be complete liquidation of all assets, Baccelli said.

In the meantime, there is a brief window for reopening talks with Air France-KLM.

"It is clear that this must happen in the next 48 hours, otherwise the road to bankruptcy protection already will have been reached," Baccelli said.

Baccelli speculated that even if the unions remained tough, the 11,000-strong work force may see the writing on the wall that Air France-KLM -- the airline with the highest revenues in the industry -- is Alitalia's best hope and press their leadership to make concessions. "I don't want to be too optimistic," he said, "but there have been precedents," citing a Fiat worker protest in the 1980s that forced unions to accept a contract.

Bankruptcy, however, may be unavoidable, according to Diogenis Papiomytis, an aviation analyst at Frost and Sullivan.

"The alternative would be for either Air One or a new investor to prepare a restructuring plan and bid for the carrier as soon as a new finance minister is in position after the elections," Papiomytis said. "However, with the ongoing global credit crisis, it is uncertain whether any investor can finance Alitalia's takeover and restructuring through debt. In the meantime, Alitalia's short-term liabilities will put further pressure on an already negative climate."

Air France-KLM's offer valued the airline at 139 million euros ($216 million), about 20 percent of the stock market value at the time and much less than expected. It would have called for layoffs of around 2,100 workers and closing the cargo unit and getting rid of some short-haul aircraft before adding new longer-haul planes. In one of the most opposed measures, Air France-KLM also planned to downgrade Milan's Malpensa airport, using Rome's Leonardo da Vinci airport as the main southern hub, complementing hubs in Paris and Amsterdam.

The collapse of the talks marked a setback to the Italian government's 15-month effort to sell its 49.9 percent stake in Alitalia before the company runs out of cash. Alitalia is losing more than 1 million euros (nearly $1.6 million) a day, and the airline said in February that its cash reserves had dropped to 180 million euros, down nearly 40 percent from a month earlier.

AP Business writer Colleen Barry contributed to this report from Milan, Italy, and correspondent Marta Falconi contributed from Rome.