Alitalia Files for Bankruptcy For Second Time in Last Decade

John McDermott

Alitalia has entered bankruptcy proceedings for the second time in the past nine years. Photo Credits: Nick McGowan / @chicagospotter

Alitalia, Italy’s national airline, is starting bankruptcy proceedings after failing to secure a finance deal with its workers. This is the second time that the airline has been forced to file for special administration in the last decade, the last time being in 2008. Since emerging from that bankruptcy, Alitalia has lost nearly €3 billion. The airline has 180 days to come up with a new financial plan, with a possible extension of 90 days if no agreement is reached within the initial 180. If the airline can’t come up with a new plan within that deadline, it will be sold or liquidated.

“Alitalia’s shareholders meeting, convened today, noted with with deep regret the outcome of the referendum of the employees. The negative vote has determined the inability the implement the relaunch and restructuring of the company,” said a statement released by the airline. This statement came after shareholders voted unanimously to file for insolvency administration.

An Alitalia plane painted in Milan EXPO 2015 colors, with Etihad and Alitalia titles. Photo Credits: Nick McGowan / @chicagospotter

Proceedings started after workers rejected a €2 billion recapitalisation plan involving close to 1600 job cuts. Much of this funding came from Etihad Airways, which owns 49 percent of the Italian airline. Etihad has said that it will not contribute additional funds to help Alitalia rebuild.

“We have done all we could to support Alitalia, but it is clear this business requires fundamental and far-reaching restructuring to survive and grow. Without the support of all stakeholders for that restructuring, we are not prepared to continue to invest,” said Etihad CEO James Hogan. “All parties will lose: Alitalia’s employees, its customers and its shareholders, and ultimately also Italy, for which Alitalia is an ambassador all over the world.”

Atalia also gets money from the Italian government. It has cost taxpayers close to €7 billion since it was rebuilt in 2008. Italian Finance Minister Pier Carlo Padoan has confirmed that the Italian government will not bail out the airline a third time, saying that the government won’t “pump more cash into boosting the airline’s capital”, despite Alitalia workers pressuring the government to help save it.

“We wanted to protect ticketed passengers and Alitalia’s workers until a suitable buyer is found,” explained Graziano Delrio, Italy’s transportation minister.

Source: Sunshine Radio Cyprus

So, why did Alitalia fail? One theory is that the carrier’s decline has a lot to do with the prominence of the European budget airline industry. Ryanair, for example, which is Europe’s largest discount airline, has a 23% share of the Italian market. This is up from 12% just ten years ago. In comparison, Alitalia held a 23% share in the market in 2007. That share has dropped to 18% in 2015.

Another factor is labor disputes with crew members. On multiple occasions, when Alitalia has presented new financial plans, labor unions have rejected the proposals due to reductions in pay, large layoffs, or both. Often, unions have rejected offers from Alitalia’s partners. ANPAC, the pilot’s union, for example, rejected an offer Alitalia partner from Air France-KLM in 2008. This pattern was repeated in recent weeks leading up to Alitalia’s bankruptcy.

“The government is delivering us naked to negotiate with Air France to the detriment of the workers, infrastructure, and the general interests of the country,” said Raffaele Bonanni, leader of CISL, one of Alitalia’s unions. Other Alitalia unions, like ANPAC, called negotiations “unacceptable”.

A board of commissioners includes Luigi Gubitosi, Enrico Laghi, and Stefano Paleari have no more than six months to review the case and come up with a plan to save Alitalia. If they fail, the Italian government will be forced to sell or liquidate the airline. (Many government officials are indicating that selling the airline would be their preferred plan.) Former Italian Prime Minister Matteo Renzi has said that he thinks a deal could be made by mid-May, but no other definite timelines have been released. In the meantime, Alitalia will maintain its current flight schedule, with no service disruptions to passengers.