In trying to save ailing flag carrier Alitalia, Italy has one objective in mind: get Lufthansa onboard.
I’ve written often about the struggles at Alitalia. As the struggling carrier continues to lose money, the Italian government is looking for a more permanent solution. Now it has instructed Alitalia to create a business plan that will satisfy Lufthansa’s preconditions to invest.
Lufthansa sent the Italian government a note on November 19th. It included a series of conditions that needed to be met before it would invest in Alitalia. While the note has not been disclosed, a few portions have leaked out:
- Lufthansa is willing to invest up to €160 million ($177 million) in Alitalia
- Alitalia must shrink its fleet by 30%
- Alitalia may be forced to sell its baggage-handling unit and reduce its maintenance division
- Lufthansa will pay Alitalia an additional €50 million if it leaves SkyTeam and joins Star Alliance
Still, even Lufthansa isn’t sure exactly what it wants. A spokesperson for Lufthansa told Bloomberg:
“We have always said that we are interested in a restructured Alitalia. We could also imagine conventional partnerships with Alitalia.”
One thing Lufthansa’s “demand” letter does not directly address is job cuts. That’s the elephant in the room, as we saw recently with South African Airways. A prolonged strike over job cuts or even pay/benefit cuts may torpedo the airline, with or without a Lufthansa investment.
Lufthansa is not Etihad; it has made clear over and over it will only invest if it believes it will be a profitable investment. And Lufthansa does not act on faith: it wants to see measurable action first.
Shrinking the fleet and maintenance units will inevitably lead to job cuts. Beyond the cash infusion, the most important question is whether Alitalia unions will revolt.
Lufthansa is prepared to invest in Alitalia with a string of conditions. But is Alitalia ready for that investment? It’s too soon to tell.