Italy Buys Bankrupt Alitalia…More Time (Again)

The flag carrier of Italy, Alitalia’s operations have relied upon borrowed, Italian government-issued time for almost two years now, following Alitalia’s bankruptcy proceedings initiated in 2017 (the second time Alitalia had declared bankruptcy in a little over a decade).

Alitalia’s second-largest investor, UAE’s Etihad Airways, which held a 49% stake in the Italian flag carrier, withdrew its investment having failed to implement a successful turnaround strategy at the Italian carrier. Etihad’s own investments in partner airlines resulted in $808 million in losses for the UAE flag carrier, leaving the airline to report an overall loss of $1.87 billion.

Once the proud flagship of Italy, Alitalia — now sat on years’ worth of debt, political interference, revoked investments, and several poor strategy decisions — has struggled with competition from low-cost airlines and high-speed trains. Alitalia was put under special administration last year after workers rejected a rescue plan, leaving the government seeking a buyer to save the national airline.

Investment, or a purchase of all, or part of Alitalia will be the airline’s third rescue attempt — and while the airlines’ bankruptcy proceedings have been underway for almost two years, the only purchase Alitalia has had so far is time. 


Alitalia is required to ‘pay back’ the Italian government a bridging loan of €900 million, with an extension granted until December 2018 (based on the presumption that Alitalia would have a buyer by this date).

It’s worth highlighting at this point that this €900 million will never be paid back, but rather, as soon as a buyer is able to inject fresh capital into Alitalia, the Italian airline will eventually pay back something. 

However, failing a confirmed deal, Italy’s Government will now seek to extend the deadline for repayment of the €900 million bridging loans by Alitalia by a further six months, to June 2019 — buying more time (again) for the debt-ridden airline to negotiate with potential investors.

The latest extension to the bridge loan deadline will displease the European Commission, which has already been investigating if Alitalia’s continuous extensions constituted as state aid subsidies, which would be a violation of EU laws. Under European Commission guidelines, rescue loans are only considered as a short-term emergency measure.

Last week, Italian media reported that Alitalia had accepted a binding purchase offer for the national carrier by the Ferrovie dello Stato (Fs), the Italian state railway company. In order for a deal with Ferrovie dello Stato is finalised, it’s expected the railway company will need to strike a deal with an airline partner, perhaps Britain’s easyJet, who has expressed interest, or Delta, in the US, who has also been identified as a potential stakeholder.

Final Thought

As Alitalia is granted another extension, and negotiations with Ferrovie dello Stato seem to be closing in for a deal, the Italian airline could face a renewed and intensified investigation by the European Commission, who believe the magnitude of Alitalia’s never-ending money-pit, combined with deadline extensions, may constitute as illegal state aid.

Last week, I flew three Alitalia commercial flights — all of which were fine, punctual, but with an obvious cloud of uncertainty over Alitalia’s future.

While the in-flight magazine described an exciting airline, rapidly expanding services to exotic locations such as the Maldives, and Mauritius, the crew on all three flights were obviously unhappy, and often doing the bare minimum in terms of in-flight duties. There was zero passenger interaction, and the onboard announcements sounded deflated, at best. But who can blame them? To say Alitalia’s future lacks clarity, would be an understatement.

Italy relies heavily on Alitalia’s route network and frequencies, and while the airline surprises us weekly with ridiculous, costly decision making (the bankrupt airline recently spent €7 million on new uniforms, to replace existing uniforms that were just 16 months old)  — the airline remain set on ‘business as usual’ operations thanks to the continuous deadline extensions courtesy of the Italian government.




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