airlines - Alitalia - Italy

Rome modifies bankruptcy law to save Alitalia

Thursday 28 August 2008

Italy's government has approved a change to its bankruptcy law in order to save Alitalia, paving the way for a breakup and restructuring of the troubled national carrier. The hunt for a foreign partner for the airline continues.

Italy's government has approved amending its bankruptcy law, paving the way for a breakup of Alitalia SpA and a bankruptcy filing for its troubled units, a source familiar with the matter said on Thursday.

A new decree which the source said had been approved at a Thursday cabinet meeting suspends antitrust laws to accommodate the airline's rescue and allows a bankruptcy commissioner to sell Alitalia's assets through private negotiations.

The centre-right government, eager to settle the stricken carrier's fate after a fruitless 20-month hunt for a buyer, also approved a draft law to amend the Marzano law used in cases of financial crisis at major companies.

Alitalia, which has not posted a profit since 1999 and has been beset by inefficiency and strikes, can now be split in two under a rescue plan drawn up by adviser Intesa Sanpaolo.

Its loss-making units -- such as its ground-services unit -- will seek bankruptcy protection while 16 Italian investors pump as much as 1 billion euros ($1.5 billion) into the healthy parts which will be reborn as a smaller, leaner airline.

Smaller Italian carrier Air One will be folded into the restructured Alitalia, which is expected to focus on short- and medium-haul routes and will operate with a much reduced fleet and about 40 percent fewer employees.

The suspension of antitrust laws would allow the combined Air One-Alitalia to overcome objections to their overwhelming dominance of the lucrative Milan-Rome route.

The carrier will then resume the hunt for a foreign partner, with Air France-KLM and Germany's Lufthansa tipped as frontrunners to buy a stake.

Alitalia's sale adviser has already held an initial meeting with the Franco-Dutch carrier, which abandoned a deal to buy the Italian airline earlier this year over union opposition, to outline its rescue plan, another source familiar with the matter has said.

Small investors in Alitalia, whose shares have been suspended since June, will likely be compensated through dormant funds available to the government, the first source said.