Delta Reportedly Submits Offer For Alitalia

Alitalia has been on the verge of liquidation since early 2017. Last March Alitalia announced a restructuring plan, given how much money the airline was losing. Employees voted against this plan, given that they didn’t want lay-offs or pay cuts.

While Etihad previously had a 49% stake in the struggling Italian airline, they decided to withdraw support, realizing that the airline wouldn’t ever become profitable. This was around the same time that Etihad reevaluated their entire partner strategy.

So the Italian government gave Alitalia a loan while trying to find buyers for the airline. They’ve had no luck finding a buyer for the airline, given that the airline seems beyond repair. The Italian government insisted their loan was temporary, but they’ve kept funding the airline. Recently the government even proposed renationalizing Alitalia, and taking a 51% stake in the airline.

Well, there are now reports of a new airline being interested in Alitalia, and this is a surprising one.

State-appointed administrators at Alitalia have confirmed that the airline has received two binding offers for the airline, as well as one non-binding expression of interest. While this hasn’t been confirmed directly, Reuters quotes a “source with knowledge of the matter” as saying that Delta Air Lines has submitted a binding offer for Alitalia.

The other binding offer is from Italy’s national rail (that would end well!), and the non-binding expression of interest is likely from EasyJet. Obviously Delta and EasyJet would have very different goals for Alitalia.

On one hand this move doesn’t surprise me. Delta, more than any airline in the world, is focused on creating a (mostly) rational alliance of global equity partners. They don’t just want to belong to SkyTeam, but rather they want a collection of airlines around the world with a common purpose, and they have joint ventures with most of them. So far Delta has stakes in Aeromexico, Air France-KLM, China Eastern, Gol, and Virgin Atlantic.

In that sense, Alitalia would be a logical next step. Alitalia reportedly actually does pretty well on their transatlantic flights, but rather it’s much of the rest of their network, along with their general inefficiency, that makes them lose so much money.

On the other hand, Alitalia is a mess for a reason, and at most Delta is going to be able to take a minority stake in the airline. So Delta will be limited in terms of how much they can do to turn the airline around, as presumably they’re still going to be dealing with a lot of bureaucracy, especially if the other major shareholder of the airline is the government.

It will be very interesting to see how this develops. I will say that if there’s an airline that I think could turn Alitalia around somewhat, Delta would be it. They’re good at this stuff.

What do you make of the potential for Delta to take a stake in Alitalia?

(Tip of the hat to View from the Wing)

Comments

  1. That would be awesome!!!!! I fly to Italy every summer for family vacation and since I live in a Delta hub that would help a lot with connections in Italy. I know Alitalia is a mess financial but I had never had a single issues when flying them within Europe. Always on time, great service, new planes and one of the best outfits for their staff.

  2. Delta has great connectivity to Europe, and this would strengthen it. If only it were easier to redeem Skymiles to Europe.

  3. Italian railways, directed by the populist government, will buy Alitalia whole without any restructuring requirement. The private bidders will be for only part of it, or will require restructuring, giving the government reason to reject them

  4. @Lucky
    Alittle research would have led you to know that the other binding offer is from Italy’s Rail which is basically being forced to take over Alitalia.
    The gov plans to keep 15%. Lufthansa said it can’t be bothered with Alitalia‘s shenanigans.

    EasyJet gave a non-binding offer.

  5. @Lucky and others – curious if you think there is risk to buying tickets on Alitalia right now? Was planning to book a trip through them in Dec-Jan. If they go into liquidation (as noted above), will that put my trip at risk? Don’t want to have to run around making new plans at the last minute. Thanks in advance.

  6. Santastico – How does it help connections in Italy? You can already make the connections regardless of whether Delta has an equity stake.

    Though I don’t understand how they can buy them outright – isn’t there a 49% cap on non-EU ownership/influence?

  7. @Callum: I probably did not make my statement clear. Delta started a MSP-FCO flight two years ago and shut them down. If they acquire Alitalia my hope is that here will be more flights from the US to Italy which will help a lot with domestic connections there vs having to fly to AMS or CDG.

  8. Prima facie Alitalia is a catastrophe that any rational thinking investor would do well to stay away from. Having said that Delta has always been very pragmatic, so they must have secured undertakings from the government to allow them to restructure the business if they have indeed made a binding offer. It is possible that they may have gotten this given that they are negotiating from a position of strength and would be looking at this deal from a purely commercial perspective verus Etihad that had nationalistic agendas.

    Ultimately Delta is the best investor Alitalia can hope for in its current form. Easyjet would be looking for access to the Italian market and lacks the familiarity of managing a legacy network carrier. Lufthansa would have turned it into a feeder for its own hubs.

    Delta would ensure that Alitalia retains its long haul network (at least transatlantic) and short haul network for onward connectivity. It has the critical mass to drive high yeilding traffic onto Alitalia’s network and moreover has the expertise to run a full service carrier efficiently. I wouldn’t be surpised if they give in to their demands if the Italian government wants to preserve Alitalia as a global flag carrier.

  9. For as long as I can remember, Alitalia has been the epitome of the Italian “carrozzone”, a Government-controlled, money-losing, bloated, strike-prone, and full of cantankerous employees. In fact, any serious involvement by a foreign airline will require a serious streamlining of the number of employees; something that in Italy is almost as hard to do as in France. The possible involvement of Trenitalia is viewed by many in Italy as a sneaky way to grab the profit from the rail company to plug the financial holes of the airline, instead of reinvesting it on the railways.

    I believe Alitalia should be totally absorbed and controlled by a foreign, better managed airline. I see no positive outcome from what is happening at the moment, especially while the 5S party is part of the government.

  10. You all seem to overlook the fact that Delta amended their Joint Venture with AF/KLM to exclude Alitalia from it. Remember when Air France had a stake in Alitalia before they realised that they weren’t going anywhere and just wrote it off? Yea at that time they were part of the old KLM transatlantic JV.
    After AF came Etihad and they lost their money too.

    Why does Delta think that they can turn this airline around? I honestly don’t see this going anywhere. It’ll end up in the hands of the Rail company.
    Easyjet is only interested in the short haul business of Alitalia and that is something they could work with.

  11. My impressions about the situation of AZ

    Last year 2017’s market shares by seat capacity for the Italian market are showing Ryan Air on number one position with a share of more than 50%. (Quite a shame for AZ). AZ on number two, and Easyjet with around 20% on position 3. Obvioisly that Easyjet wants to catch up here on Ryan. But in case that Easy is taking over AZ, it might become the end of AZ long haul destinations and those will leave to Air Italy.

    This would match nicely to the QR plannig to raise up Air Italy fleet with up to 30 x 787 for their long haul network. This would be the end of AZ intercontinental network.

    Italian National Railway is a good candidate when it comes to get the accetpance of their bidding by the Italian government. This new populist government has a strong goal to keep AZ “Italian”. In my impression with less considerations on what could be the best solution for AZ under long term economic considerations. But Italian new government is running under “Italy First” program, which has turned off LH’s investment plannings. And thats another treat for AZ!

    Since LH gave up their investment plans on AZ, due to the government change, LH will now invest 100 Millions Euro on the fleet of their already incorporated Air Dolimiti. (It is for 20 x E195 regionals). This was already for many years their perfect feeder to pick up the high yield customers from Northen Italy, mainly to their MUC hub.

    For instance, when taking the evevening long haul flights to Far East you can see many Italians filling up their A340’s on their legs to Asia. Even if you take a mid haul flight to Scandivian destinations, you will see a lot of Italians, fed by Air Dolimiti, from those high yield locations, such as Bologna, Verona, Venice, etc. AZ had no clue how to get these passengers from those towns back on their long haul flights from MXP or FCO. And Northern Italy is still a high yield market!

    AZ desperately needs to stay and/or to get back into a global network alliance. Delta could be a solution, even the details on this bidding are not known yet, esp. when thinking about the probably necessary stream lining of their employees. But even more not sure with this government, as of their “Italy First” approach.

  12. I would not be surprised if the expression of interest is from Lufthansa because ever since Alitalia entered administration they have said they would like to bring them into the Lufthansa Group. But I’m not sure if they would settle for a minority stake.

  13. Alitalia has a long and storied history in Italy and the government is a proud one wanting national carriers as back in the day of the large national ocean liners. And, Alitalia, while horrible 5 or so years ago, did get a lot better. However, there is no one, not Delta, not one middle eastern airline that is infused with cash from their government; that can break the back of the proud (stubborn) Italian worker who has a sense of entitlement and has not a worry in the world voting their wallet (count the number of governments Italy has had since WW2). As a proud Italian, i’d vote for the government to run it like they did back in the 60’s and 70’s. Massively lose money, but the passengers and crew were happy i

  14. Milano, circa 1976 when onward bookings had to be reconfirmed by phone or at a CTO.
    Me: “Would you please confirm my seat on AZ (whatever) to Amsterdam bay after tomorrow?”
    AZ agent: “Of course, looks up booking, year sir your reservation is in order.”
    Me: Thank you. (turns to walk to door)
    AZ agent: “But….we are going to be on strike that day”
    The stage sets, props, have been updated but as far as the plot, NOTHING has changed.

  15. Would I ,as an airline take on this airline? No, as the employees run it, you will get promises, but will they be kept,? no, The airline needs to be cut down,,with the route of the trouble makes the boot, I,ll let the Airline ,carry on, till the government is force to stop, putting funds in, then take it over,

  16. “Perhaps they are using DL “offer” just as a bait to attract real investors.”

    Every real investor runs upon hearing the sentence “Do you want to buy Alitalia?” So many have tried their luck. So many have failed miserably.

  17. My friend got this joke calculator once that only added up to 80085 (boobs) and I guess the Italian government uses the same calculator or at least one that factors in Italianess.

    The main problem is the Alitalia name.

    Etihad had a solid plan when trying to reform the airline but again the Italian factor caused nothing to change.

    Air Italy could grow because it was called Meridiana which reduced the whole Italian pride factor.

    Alitalia has the potential to be a European powerhouse but keeps getting let down by Ego’s and stubbornness

  18. I think they are crazy. This airline needs go under just to save the Italian government some money. The people who work it don’t want to help save the airline so why should Delta waste their money.

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