Italy’s new ITA airline is, of course, the successor to Alitalia. Everything about the company, including its plans to buy the old brand, make that clear. But thanks to an EU ruling today the new carrier will not be saddled with more than a billion dollars in debt from the old company.
Italy has demonstrated that there is a clear break between Alitalia and the new airline ITA, and that its investment in ITA is in line with terms that a private investor would have accepted.– European Commission EVP Margrethe Vestager
On the one hand, the obviously illegal €900 million, granted by Italy to Alitalia in 2017, must be recouped by the Italian government from the carrier. The European Commission ruled that the Italian government did not consider whether Alitalia would have sufficient cash flow or assets to repay the loans. Or, if it did consider that, the government did not care that the carrier would obviously come up short.
On this basis, the Commission concluded that no private investor would have granted the loans to the company at the time and that the two loans constituted State aid within the meaning of EU State aid rules.
The new ITA will not honor tickets purchased previously under the Alitalia brand (those are being refunded by Alitalia). Nor will it be permitted to acquire the MileMiglia loyalty program. Both of these actions prevent “direct transfers of customers between the two companies,” a key European Commission requirement.
The new company will also acquire only a limited number of aircraft and airport slots from its predecessor.
Moreover, it will not inherit the labor contracts nor the maintenance operations. It can bid on a minority stake in the latter.
There is the promise of “open, transparent, non-discriminatory, and unconditional” bidding for these transactions, including for the Alitalia branding. Whether anyone else intends to bid, however, remains to be seen.
A separate investigation remains open into another €400 million loan granted by Italy to Alitalia in 2019.
But, in many ways, the outcome does not matter. Alitalia is bankrupt and almost certainly unable to repay the loans. And in the meantime the government kept the carrier running.
And, perhaps more importantly, the next €1.35 billion should be clear of these concerns thanks to the revised business plan.
Multiple external parties reviewed the new business plan and are comfortable that it is in line with what the general market would consider acceptable risk and investment in the aviation industry today.
In this respect, ITA’s business plan shows that ITA will be a viable airline, which will carry out a business strategy based on a reduced and profitable route network, improved cost efficiency, digitalisation and environmental sustainability through a new-generation fuel-efficient fleet, which will result in lower maintenance and fuel costs.
On this basis, the Commission found that the expected internal rate of return (IRR) of the investment in ITA would be higher than the cost of equity. This assessment was also confirmed by three independent expert reports that analysed in detail various aspects of the proposed operation.
So Italy seems to have cleared the hurdles to invest more than 2.5 billion euro in its flag carrier(s) over a five year window. Even if half of it turns out to have been illegal.
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