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Brussels has 'doubt' about Italy's aid

Latest update : 2008-04-24

The Italian government's decision to give 300 million euros to Alitalia as commercial loan was put in jeopardy by the European Commission who considers it illegal state aid. Many airline companies are watching the case closely.

European airlines denounced Italy's plan for an emergency loan to struggling airline Alitalia as illegal state aid as the European Commission said it, too, had doubts.

The Italian government decided on Tuesday to give Alitalia a 300 million-euro ($473 million) loan to keep it flying until a new buyer is found, after Air France-KLM pulled out of a takeover deal this week.

But rival airlines said it would be unfair if Alitalia received government help while they were undergoing painful cuts to staff levels and other costs to cope with soaring fuel prices and weakening consumer spending.

Alitalia is bleeding more than a million euros a day and the loan is expected to stave off bankruptcy, but the EU allows
state aid to companies only under strict conditions.

EU rules would prevent Italy from lending Alitalia any money unless Rome took the same approach a private investor would in assessing the risk and setting the interest rate.

"State aid or no state aid -- that is the question," a Commission spokesman told a regular briefing. "If state aid, then it should not be paid out before it is authorised."

A spokesman for EU Transport Commissioner Jacques Barrot said Rome would need to provide information to clear up doubts. "We want to understand if this is a commercial operation as the Italian authorities claim," he said.

Italy's outgoing government said on Thursday it would respond to the European Commission within 10 working days.

"Mockery" of EU rules

Irish budget carrier Ryanair called on the Commission to stop the loan.

"This latest bailout makes a mockery of EU state aid rules," said Ryanair's head of legal affairs, Jim Callaghan. "Propping
up an inefficient national airline, which would have gone bankrupt long ago, is simply illegal."

British Airways said it was "watching closely" to see if Italy sticks to the rules, while Scandinavian airline SAS said it was considering action.

"We are, indeed, seriously considering contacting the European Commission and asking it to look into this action by the Italian government," said Hans Ollongren of SAS.

But analysts said Italy was unlikely to be deterred by either the EU or legal challenges from other airlines.

"They'd be prepared to accept the risk of legal challenges given the gravity of the situation," said Nick van den Brul at Exane BNP Paribas. "It would be a political nightmare if Alitalia went into administration."

Italian prime minister-elect Silvio Berlusconi, who made opposition to Air France-KLM's takeover of Alitalia a key part of his election campaign, has promised an Italian business group backed by banks and airlines would bid for the carrier in weeks.

Political rivals dismiss talk of the consortium as rhetoric, but the head of Alitalia's Anpac pilots' union on Thursday said he was convinced it existed and that initial contacts had already been made with union officials.

Italian businessman Salvatore Ligresti, the main shareholder in insurer Fondiara-Sai, says he favours an Italian bid but has not elaborated on his potential role in such a bid.

Luciano Benetton, founder of clothing retailer Benetton Group, said it was premature to talk of involvement in the effort until an industrial plan for the airline's recovery had been mapped out.

Separately, Alitalia Chairman Aristide Police, in a meeting with unions, said a new chief executive would be appointed soon for the airline in consultation with Italy's next economy minister, an official with the SDL union said.

The airline holds a board meeting later on Thursday.

Date created : 2008-04-24