We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Sun 10 Aug 2014 03:55 PM

Font Size

- Aa +

Why the Alitalia deal is Etihad's boldest move yet

Can James Hogan pull off his most audacious move yet and prove the doubters wrong, asks Ed Attwood

Why the Alitalia deal is Etihad's boldest move yet

Alitalia chairman Roberto Colannino was in a reflective mood during Friday’s press conference in Rome to mark Etihad’s landmark purchase of a 49 percent stake in his airline. Colannino recalled having dinner in Mantua with a prominent Italian journalist shortly after taking the top job at the flag-carrier, who questioned why he was getting involved with the risky aviation business, and especially with a troubled brand like Alitalia.

The chairman replied that it was his “dream” to try and secure the airline’s future by tying up with a heavyweight partner – preferably from the Gulf - a point that elicited a fair degree of scorn from the journalist. After all, he said, why on earth would a major Gulf airline want to invest in Alitalia?

Colannino’s words revealed a lot about how many Italians feel about their national airline – with a twinge of embarrassment. In balance-sheet terms, it has had a woeful history, last posting a profit more than ten years ago. Last year, its net loss more than doubled to 569 million euros. It was used as a political football by former Prime Minister Silvio Berlusconi, who trumpeted it as a national asset and refused to sell it to foreign investors when it entered bankruptcy in 2008. Instead, the airline was kept it in the hands of Italian shareholders who have clearly lacked the funds required to turn it around.

On top of that, it flies from a set of Italian airports that have by and large seen better days, operates a series of loss-making domestic routes, is subject to the whims of some pretty fractious unions and has a brand that could best be described as dated. To put it bluntly, Alitalia has not had a lot of love in recent years.

Enter Etihad Airways. Make no mistake, of the eight equity stakes that the UAE flag-carrier has taken in other airlines, this deal is by far the most significant. No wonder Etihad chief executive James Hogan - who has spent almost exactly a year putting this deal together - looked equal parts exhausted and exuberant during the press conference. There was plenty of backslapping with Colannino and Alitalia chief executive Gabriele del Torchio and the conclusion of Hogan’s speech was even greeted with what appeared to be an impromptu round of applause from the Italian press corps.

Hogan will be hoping the feel-good factor persists. After all, let’s not forget that this is the national airline of Europe’s fourth-biggest economy, and the world’s ninth biggest. Companies like Ferrari, Finmeccanica, Eni and Enel may be both innovative and influential, yet they operate in an economy whose main airline doesn’t have direct flights to emerging markets like China, India or South Africa. In addition, Italy is the world’s fifth-biggest destination for inbound tourism. The potential is clearly there – even though the announcement came only two days after the government of Prime Minister Matteo Renzi confirmed that Italy had entered triple-dip recession territory.

But as Hogan was at pains to point out, the hard yards start now. A team from Etihad will return to Rome in September to brief Alitalia’s staff. Roughly 2,000 of the airline’s 12,500-strong workforce will be made redundant, although an unspecified number have already found jobs with Etihad in Abu Dhabi.

Management changes seem to be on the cards and neither Colannino nor del Torchio look likely to stay in their jobs. The European Commission will examine the deal to ensure that it doesn’t fall foul of competition regulations. A plan to add new wide-bodied aircraft, new long-haul routes and a new brand will be implemented. In the near term, the purchase of a 75 percent stake in Alitalia’s frequent flier programme will presumably see a healthy 112.5 million euros booked against the airline’s bottom line for 2014 if the transaction goes through in time.

And the immediate goal? To see Alitalia turn a profit by 2017. To be even thinking in those terms would not be possible without Etihad’s investment – in terms of both cash and management experience. Perhaps the UAE carrier’s trump card is the size of the existing equity partnership: a combined fleet of 700 aircraft, 400 destinations and 110 million customers. In all likelihood, the new aircraft that Alitalia needs have already been bought. It also means cheaper fuel, cheaper catering, cheaper maintenance and so on.

So can Hogan pull off his most audacious move yet and prove the doubters wrong? Time will tell, but it is hard to think of a partner better equipped to help Alitalia get back in the black.

Arabian Business: why we're going behind a paywall

For all the latest transport news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Real news, real analysis and real insight have real value – especially at a time like this. Unlimited access ArabianBusiness.com can be unlocked for as little as $4.75 per month. Click here for more details.
Steven 6 years ago

Dear Mr Attwood, as I have commented here on quite a few occasions, this will be a huge problem for EY.
The workers will be glad yet another 'life' has been given to them, but they are a very surly bunch. they really don't care to give good service as they are protected by severe draconian labour laws. It is almost impossible to 'fire' anyone in Italy, it costs so much money in legal fees and the courts and too much trouble with the union representatives/labour, that I know companies (I am resident in Italy and Abu Dhabi), that prefer in the end to pay people to sit at home on basic salary as its much, much easier than to fire them.
So this is the problem with Alitalia - its staff, who also refuse to live anywhere other than Rome (most are Romans), and so much money is spent and time and effort in moving crews around to take flights from other cities such as Venice, Bologna, Pisa, Milan etc etc. Quite frankly they are a disaster, both in the air and on the ground and Italians know this

Elisa 6 years ago

Former President's name is Silvio Berlusconi, not Sergio

Nicola 6 years ago

Dear Ed, firstly our former Prime Minister's name is Silvio and not Sergio Berlusconi. Secondly, facts are a little different. Air France / KLM made an offer to acquire over 30% and it didn't work because of Italian Trade Unions and at that time our PM was Romano Prodi who was shortly defeated by Berlusconi after general elections. Then Air France ultimately took a smaller stake of course with a smaller injection of capital and I think this is the best thing that has occurred to Alitalia because Air France had no interest in developing or saving Alitalia, rather its aim was to move the most profitable routes through Paris. So Berlusconi had put together a bunch of investors (mostly fake investors), created a newco, left the oldco full of debts that of course contributors covered.

Etihad move is more than welcomed because this is the last call. Trade Unions finally have been angled and this might be the real most important change in the airline's history. Hopefully.

Ed Attwood 6 years ago

Elisa - thank you for commenting, and apologies for my embarrassing error. I have now corrected it.