Insanity: Italian Government Wants To Take Permanent Stake In Alitalia

For over a year now, Alitalia has been more or less bankrupt. 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, because any rational airline wouldn’t want to invest in the sinking ship that’s Alitalia. Arguably the only way this could ever work out is if the airline liquidates and they start from scratch.

The Italian government said they’d provide a temporary loan and promised they wouldn’t keep funding the airline, though they’ve continued to fund the airline.

I guess this shouldn’t come as much of a surprise, but it looks like the Italian government now has new plans for the airline. They’ve now gone from threatening to cut off the airline to promising to fund them long term.

The Local reports that the Italian government is now proposing that they renationalize Alitalia by taking a 51% stake in the struggling carrier, to make Alitalia a flagship of “Italo character.”

The proposal is that the government would take a majority stake, while a new private partner would take over the rest of the airline. Italy’s Minister of Infrastructure and Transport said the following while discussing the plan:

“We will bring the company under the national flag, with 51 per cent in Italy and with a partner that makes it fly.”

Then Italy’s Minister of Labour and Industry said the following:

“We wrote it clearly in the government contract and now we are following exactly that road: Neither rescue, nor survival, but a re-launch within a strategic transport plan that makes Alitalia a competitive national carrier.”

This is just so delusional. So the Italian government isn’t going to “rescue” the airline, but rather is going to “re-launch within a strategic transport plan?” All while the government is the primary shareholder? There’s simply no way this is going to end well. Beyond that, what partner would want to take a 49% stake in the airline when the government owns the other 51%?

What makes the timing of this especially interesting is that Air Italy is presently growing like crazy, and wants to become Italy’s new “national airline.” This comes after Qatar Airways bought a 49% stake in the airline. Qatar Airways plans to send 30 Boeing 787s their way, so over the coming years the airline will have a longhaul fleet that’s larger than Alitalia’s.

It sure seems to me like on some level the Italian government is trying to stop Air Italy’s growth. It’ll be interesting to see if that just comes in the form of competing directly with them, or if they’ll put some policies in place to stop Air Italy.

This whole Alitalia saga is just the definition of insanity, as they do the same thing over and over, and expect different results.

What do you make of Italy’s plan to take over a 51% stake in Alitalia?

(Tip of the hat to Live and Let’s Fly)

Comments

  1. Lucky, TAP Portugal pulled off something similar recently, with the State taking back 50% of the company, while the private partner that is actually running the company reduced it’s share to 45%. If it will work or not, remains to be seen.

  2. Seems like the Italians are dumber than Malaysians. At least the Malaysian government was smart enough not to meddle with MH’s affairs.

  3. I think this makes as much sense (sic) as the recent developments with Air Tanzania, Nigeria Air and Uganda Airlines that you were so excited about. 🙂

  4. “Italo Character”

    Dude the only positive thing I can say about Italo Character is Olive Garden is pretty tasty and provides a reliable meal.

  5. If you refer to „the Italian government“ you should provide a year along with the quote/reference because governments in Italy change just about every year. So abrupt changes in „strategy“ may not be illogical but a result of a change of government.

  6. As a fellow member of Sky Team will Delta whine and moan about a government supported airline that they are in bed with?

  7. I can certainly see the issue for the Italian government, especially one that’s run by populist parties. If Alitalia fails, that’s a lot of jobs lost but, more critically for the new government, it’s the failure of a marquee Italian brand under their watch.

    And the issue of Air Italy is twofold. One is that, with the rebranding of Meridiana as Air Italy, it’s become an entirely new airline in the eyes of most people who aren’t Av-geeks like us. When you pair this with the investment from the Qataris, the politics of a foreign-owned carrier putting the “flag” carrier (regardless of the realities of Alitalia’s past ownership structures) out of business are further bad optics for the Conte government.

  8. Well, I’m Italian and I can tell JW that people aren’t dumb here: in fact, we’re so tired of funding AZ at taxpayers’ expense…but I guess that our new government is more worried about votes…
    BTW, Olive Garden sucks, can’t call that an Italian restaurant.

  9. @mallthus “marquee Italian brand” – I haven’t laughed so hard in a long time 🙂

  10. Oh my…. Well, it’s bad business, if not insane. Oriole from countries like the USA would have a very hard time making sense of this. I wouldn’t compare eothbTAP though: TAP has been doing well lately, they are expanding and their product is bring well received. This seems more like a nationalist delirium. I sure will never fly AZ, despite their nicely designed cabins and crew uniforms.

  11. iv & Icarus, before the Italian govt was supporting Alitalia via the Post Office & claiming it was to make sure mail got delivered. This is a much more bold-faced anti-competitive move.

  12. Lets put railways airlines and dont forget the health care into government hands. It always worked out well.

  13. Let’s put defense and police into private hands. Survival of the fittest. We don’t kill off enough old people. Putting policing in private hands will make sure boomers stop being leeches. Defend yourself (or pay someone to do it) or perish

  14. Air Italy’s livery doesn’t actually exude, well, Italy. Alitalia is a great airline. I hope it continues.

  15. @Debit. not sure if you meant your message to me, but if you did, I never said Police and Armed forces. I believe that a government should be in charge of protecting their citizens from harm way, being domestic or external. I just don’t believe that a government’s place is in for profit business like an airline.

  16. @Endre We all are free market capitalists till the market comes for something we care about and then we are all for State Support.
    Different people just care about different things.

    Thats why we have elections. If enough people care about having Alitalia survive that they are willing to put public funds into it then they will elect a govt which will do that and vice versa. Giving advice to one country to follow the same policies as another country is the only obnoxious thing.

  17. Remember, this is the same country that in 1965 built – with government assistance – twin transatlantic superliners, the MICHELANGELO and the RAFFAELLO, for service between Italy and New York, at the same time other transatlantic steamship companies were selling-off their expensive-to-run Atlantic liners. With the huge success of the 707 and DC-8, it was clear to virtually everyone (except the government-owned Italian Line) that the vast majority of transatlantic passengers were opting to cross the Atlantic in 8 hours instead of 8 days. The beautiful MICHELANGELO and RAFFAELLO never earned a dime for Italy and sadly, had very short lives.

  18. I don’t think there is a right answer. Government can be and are corrupt and inefficient. Free markets work until they don’t and then you need governments and federal reserve to bail them out. Without federal reserve we might still be in a recession.

    We need a mix of both. Pure ideological drivel will never solve any problem. I hate hard left communists as much as hard right fascists. Flexibility is the key.

    Politics is a pendulum. Currently it has swung so far to the right that when it returns it will swing to extreme left. And that’s bad for everyone, even the liberals.

  19. Railway and healthcare in goverment hands actually worked well due to the high fixed costs (and risks) associated. A mix of public and private health care works great in the commonwealth. China now has longer high speed railways than the rest of the world combined.

    Airlines on the other hand is much more competitive with lower barriers for entry and goverment management and funding does not add much.

  20. (1) Olive Garden is the nastiest GMO riddled food you can eat!..taste nasty and I said this years before I ever went to Italy.

    (2) With this government in place its clear they are coming for QR / Air Italy, It’s not going to be pretty. As for what the EU will have to say, hmmmm let’s see. I think Italy is next to try and leave the EU (not that Britain will succeed in doing this anyway)

  21. It’s a fascinating quandary. On one hand it will clearly breach EU rules regarding subsidising airlines that gives them a competitive advantage (run at a loss and force competitors to do the same), but on the other hand why should nation states be barred from owning airlines? Does this mean governments must divest themselves of all investments? Does it make sovereign wealth funds lawbreakers? The same arguments resonate about the ME3, Boeing vs Airbus etc.
    The world’s economies have become so complex and so intertwined that there aren’t any simple answers anymore. Of course whilst we argue all this the one party Asian state behemoth which plays by its own rules and seeks influence and power with few moral or ethical boundaries grows alarmingly larger (hint: it’s not Myanmar or Brunei)

  22. Isn’t this basically what happened in 2009 and 2015 when they made a new Alitalia by just moving the aircraft and branding to a new holding company?

    Alitalia has never been profitable and any other country would have consigned it to the history books. But Italy.

    Isn’t it illegal though under EU law for the government to fund it this way?
    That’s why Cyprus Airways was disolved because the government gave illegal help to the company.

    And that’s the same reason why the German government didn’t save Air Berlin because it would be against EU state aid laws.

    I’m guessing the Italian government will just take over Etihad’s share for free and that way they aren’t technically breaching laws regarding state aid.

    We all know Air Berlin was a lot stronger than Alitalia and the Germans knew that it couldn’t be saved without pouring money into it.

    As for Alitalia it will never die as we’ve seen through it’s whole life that it’s more to do with Italian pride than any real business sense.

    Altough I am happy that this means the staff are protected as it’s always sad when employees lose their livelihood through no real fault of their own.

    It’s still crazy though.

    But as they say ‘When in Rome’

  23. Yes Yes Yes!!!!!
    Across the EU the state carriers should be nationalised again and the (u)LLC’s stripped of their operating licences; only then can we enjoy greater service in the sky.

  24. @Varun Susarla Ah yes, who would’ve expected that someone who complained about recliner seats in short-haul J would be the same person who wants countries to renationalise their flag carriers and wants LCCs to be striped of their AOCs.

    Obviously you and your privileged ass wouldn’t mind if prices skyrocketed so much the common man wouldn’t be able to afford plane tickets.

    Maybe you should get out of your ivory tower from time to time and experience the real world.

  25. It will be interesting to see how the EU reacts. Yes, we all know that CY went bankrupt because it had to pay back government aid it received. But Italy is not Cyprus and the EU has a long history of bending the rules if it comes to large, founding member states (e.g. Germany, France and Italy several times violated the Maastricht fiscal rules and got away with it, while smaller member states were punished for exactly the same …). Frankly, I do expect that the EU bends the rules because it’s Italy and not Cyprus …

  26. @Jordan – One reason I don’t like visiting the great USA is the GMO. My government in the UK had kept it out of the foodchain for a reason and I will eat almost anything there. Same goes for India.

  27. I have a funny feeling the Etihad (stupidly) will reinwest in Al Italia to make sure AirItaly (and QR) doesnt win. EY are stupid enough to do it and the QR vs the rest battle seems to go on and on and on. Italy might be a good battle ground for them..

  28. @idp5601 – Maybe for poisoned American middle classed people like I assume yourself? GMO’s are legal in America because the 0.1% do not mind corrupting the food supply in lieu of profits. Outside the US/Canada GMOs other than Bt cotton are outlawed or labelled/restricted for the same

  29. “I’m guessing the Italian government will just take over Etihad’s share for free and that way they aren’t technically breaching laws regarding state aid”

    That wouldn’t change the legality of any aid – it makes no difference whether a public body is an owner (or part owner) of the entity receiving the aid.

    And as for the comment up the chain that government should make sure it protects its citizens I couldn’t agree more – it’s just that as Europeans we strangely think that protection should include things like getting medicine when you’re sick whether you can afford to pay for it or not…

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