Air France-KLM buys into streamlined Alitalia

AFTER a three-month battle with Lufthansa Air France-KLM has won a 25 per cent stake in troubled Italian flag carrier Alitalia. Air France-KLM has apparently agreed to pay over €300 million (US$411 million) to the owners, the Compagnia Aerea Italiana (CAI) investment group, for the stake. CAI bought the choice parts of the carrier last year.

A Lufthansa spokesman admitted that it had only proposed a plan for Alitalia to cooperate within the Star Alliance, not enough of an incentive for CAI. Also, it had wanted more than a 25 per cent stake, something CAI was reluctant to award.

As part of the new deal Alitalia has also shut down its cargo division. Its three remaining MD-11 freighters will no longer fly to the Far East and the US. Cathay Pacific is expected to pick up the slack in cargo flights to Milan.

Up until only a couple of months ago Italian prime minister Silvio Berlusconi had been against the Air France-KLM deal for fear that the Franco-Dutch company would move Alitalia’s hub from his northern powerbase of Milan down to the more lucrative Rome in the south. His turnaround suggests that Air France-KLM has made enough compromises and deals to assuage his and his northern business associates’ concerns.

Some northern politicians still oppose the deal. In recompense for the suspected move south, Umberto Bossi, the head of Berlusconi’s primary supporter – the Northern League, is thought to have been pressurising the prime minister to liberalise air traffic rights so that other airlines can increase flights to and from Milan’s Malpensa Airport.

However, the European Low Fares Airline Association (ELFAA) has formally complained to the European Commission about a new airport tax to shore up the reformed Alitalia. CAI and the airline will receive €100 million per annum over a seven-year period thanks to the ‘Save Alitalia Decree’. In this highly controversial law, the Italian government imposed an airport tax of €3 per passenger from 28 October 2008.

John Hanlon, secretary general of ELFAA, said: “ELFAA members are extremely concerned about the precedent this subsidy sets. This time not only the taxpayer but also the competition pays.”

“Nothing less than the credibility of the European Commission is at stake. If the EU allows member states to tax foreign companies to finance an ailing national champion, the Single European Market is sacrificed at the altar of economic nationalism.”