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.
Uh oh, bad things happen when Germans and Italians get together.
Alitalia is on life support so it does not have a choice. In fact, it should be glad that it is being rescued by other(s). Prepare for Alitalia to leave the SkyTeam and join Brussels Airlines, Swiss,.. under the parent Lufthansa
It certainly doesn’t have a choice, but look what happened to South African Airways.
And also the previous attempts to save Alitalia
Lufthansa definitely holds the power here. I feel like EUR 160mm is a drop in their bucket considering they reported EUR 3.7bn in operating cash flows for the first 9 months of FY19.
Alitalia, TAP, Olympic and Iberia were the state owned Mediterranean nightmare. Bad service, bad reputation, strikes, lousy on time performance, etc.
TAP and Iberia reinvented themselves. But also, they both have a clear niche market. Iberia rules Latin America. And TAP is conquering once again Brazil and is growing in North America.
But Alitalia doesn’t have a clear market. It suffers from heavy competition, legacy carriers and low cost. Unions are very strong. And it has been a headache for decades.
Who knows why LH is interested.
Unions are also very strong in Germany. And the northern Italian business cities are really not that far from LH’s existing long haul hubs of Zurich and Munich. I think they plan to turn Alitalia into a feeder for LH’s existing long haul flights.
LH probably has a solid plan in mind as they have successfully incorporated two flag carriers into their group and have learned from the failure of Lufthansa Italia. I wouldn’t bet against them.
As a United 1K who travels to Rome fairly often from the West Coast, is there any reason that I shouldn’t be excited about the possibility of Alitalia being coerced to join Star Alliance (distant in the future though it may be)?
Somehow I think the Lufthansa conditions will not be met because they will result in job cuts and the Italian government will continue to prop up Alitalia indefinitely.
Unless and until the Italian Government is truly prepared to allow Alitalia to fail and cease to exist nothing will change.
The unions know full well they don’t have to accept job cuts or concessions because Alitalia will not be allowed to fail period. Without the kind of concessions and control that LH will never get I can’t see them investing. So while they may be interested it’s a moot point. The Italian Government will simply keep injecting cash as required.
Successive Italian govts say that Alitalia is neither too big nor too culturally significant to fail, and that it will no longer be bailed out; same govts continue with de facto bailouts…giving the unions the understandable impression that this is ‘writ in concrete’, to continue in perpetuity.
Unless the unions are given an unequivocal message that time is up, this will drag on forever. Lufthansa might well be the only option.
Why would LH even consider this without any ability to reduce headcount? Isn’t that the major reason Alitalia is a mess? Surprised that was not demand #1.
How could LH have any chance to make this work without headcount reduction?
Alilitalia e morta thanks to the union and all government
Alitalia – the only airline in the world that gives “sick days” to FA’a because of their monthly periods!
Let it just die…..
Everyone is assuming there are no headcount reductions being asked by LHG but the actual contents of the note haven’t leaked, only bits of it. Either way, 30% fleet reduction = headcount reduction already. I envision if this was to happen head office staff will also be reduced but probably more gradually.
Seems a risky investment but I’m sure LHG won’t jump in unless its absolutely sure its conditions can be met. I wonder if this happens what this will mean for Air Dolomiti if anything…
Kick the can and helicopter money. Italian governments of all colors know nothing else to solve the economic woes of former state-run companies.
No politician will ever take the blame for 3k job cuts that AZ will have to make, sooner or later.
Now, we’ve seen this moment of reckoning pushed further and further over the years with a solution nowhere in sight.
The only hard reality is that Italian taxpayers – including myself – are still coughing up money to keep it flying…