Alitalia to enter into administration

Alitalia will make a formal request to enter into bankruptcy after employees last week rejected a rescue plan.
The Italian flag carrier’s board of directors, which convened after a shareholder meeting, decided to proceed with administration in light of the “serious economic and financial situation of the company”, the shareholders’ unavailability to refinance and the impossibility of finding an alternative solution in the given time.
The airline said it noted with deep regret employees’ decision last week to reject a rescue plan.
“Italian shareholders and Etihad, based on the strong potential growth of the company, and on an industrial plan which included a structural cost reduction of which two thirds were not related to labour costs, were committed to recapitalise and finance the plan with €2bn,” Alitalia said.
According to Reuters the workers rejected the rescue plan because it would involve wage reductions and 1,700 job cuts, instead hoping that the government will step in.
Rome has provided a €400m bridge loan to help the airline operate during the bankruptcy proceedings. The government has ruled out re-nationalising the airline or providing further funding.
In the meantime all flights will operate as planned.
Speaking last week, Neil Smyth, partner in the Restructuring & Corporate Recovery team at international law firm Taylor Wessing, said: "Alitalia is the latest in a long line of national carriers facing an insolvency process as it vies with the low cost and budget airlines in a fiercely competitive market where pressure on the leisure pound/euro is also increasing.
"Many airlines, particularly in the US, have used insolvency processes to drive through restructuring necessary to streamline their operations to enable them to remain competitive.
"This can be harder to achieve in mainland Europe where employment laws provide stronger protection for employees resulting in the position that you are currently seeing in Italy where employees have rejected Alitalia’s rescue plan in the hope that the government, possibly through a special administration, will bail out the airline."
Etihad Airways said it was disappointed that, "despite its significant investments in Alitalia," the Italian airline had entered extraordinary administration.
James Hogan, president and chief executive of Etihad Aviation Group, said: “We have done all we could to support Alitalia, as a minority shareholder, but it is clear this business requires fundamental and far-reaching restructuring to survive and grow in future. Without the support of all stakeholders for that restructuring, we are not prepared to continue to invest. 
"We therefore support the necessary decision of the Alitalia Board to apply for extraordinary administration.
“We are disappointed that despite Etihad’s significant investments in Alitalia, alongside those of the other shareholders, the airline was unable to proceed in its current form.
Hogan continued: "The initial strategy developed by Alitalia at the time of Etihad’s investment and implemented from 2015 delivered significant improvements. However, new marketplace challenges, including greater low cost carrier competition and the impacts of terrorist events on tourism demand, meant further, deeper change was required.
“As a supportive investor, we have delivered on our commitments since taking our minority share.  Our investment, alongside the other shareholders, has helped to protect thousands of jobs over the last three years. We would like to thank the other shareholders, and the Italian Government, for their commitment as we have worked together since we took our shareholding.
“Italy remains an important market for us and we will continue to work with Alitalia as a commercial partner alongside our own presence in Italy.”

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