Alitalia set for painful restructuring

Jobs cuts necessary for investment, says Del Torchio

(ANSA) - Rome, June 9 - Italian carrier Alitalia is in for some "painful and arduous" restructuring but should see a deal with Etihad Airways in a matter of weeks, the airline's chief executive officer said Monday.

Gabriele Del Torchio said that changes were necessary to attract essential investment from Abu Dhabi-based Etihad, which he said is prepared to invest 560 million euros in the cash-strapped Alitalia. Del Torchio acknowledged that 2,200 Alitalia employees from a staff of about 14,000 will be laid off as part of the changes demanded by Etihad before it finalizes its investment, likely by July. "There is an absolute need for Alitalia...to go through a complex, painful and arduous process of restructuring," he said.

The job cuts are non-negotiable for Etihad, he added. Last week, Italian Labor Minister Giuliano Poletti said that the deal could require the Italian carrier to cut as many as 2,500 jobs and restructure as much as 800 million euros in debt. Poletti will meet on Tuesday with unions to talk about job losses related to the deal, Transport Minister Maurizio Lupi said. Del Torchio said that a tentative pact could be ready to go before the Alitalia board by the end of this week. The negotiations, which have been going on for six months, would see Etihad take a share as large as 49% in Alitalia.

That had triggered concerns with the European Commission, which warned Italian authorities to ensure the United Arab Emirates carrier does not gain a majority holding. EC rules require that majority ownership of European airlines remains in European hands, and last week the Italian government reassured the EC that those rules were being obeyed. Speaking at an aviation conference, Del Torchio said the deal would keep a majority of ownership "in Italy, or rather Europe, since Air France is a partner". "We're not selling the airline to these potential partners in Abu Dhabi, but we want to ally with them," he added. To survive, said Del Torchio, Alitalia must also become more operationally efficient and strengthen its "intercontinental presence" as a carrier known for serving more than Italian and European markets.

Unions have been generally supportive of the investment by Etihad, which will keep the Italian carrier a viable employer, and had said little about the job cuts when these were still rumours. The tie-up would allow Etihad to expand its roots in the lucrative European market while giving new life to Alitalia, which was subject to a government-led bailout last fall - only the latest in a series of restructuring attempts by the carrier as it struggles to remain competitive. Last October, the Italian government engineered a 500-million-euro Alitalia restructuring plan that included a 300-million-euro capital increase and 200 million euros in new lines of credit.

However, major investor Air France-KLM at the time rejected the restructuring plan, saying it did not go far enough to reduce Alitalia's debt - which is also a sticking point for Etihad. According to recent media reports, Etihad has been negotiating with banks that are the major creditors in Alitalia, including Intesa Sanpaolo and UniCredit, in an effort to see the banks write down a sizeable amount of the Italian airline's debt. Those talks are at an advanced stage, said Del Torchio.

The proposed investment also triggered protests from rival European airlines, which were also upset about last fall's bailout plan that saw Poste Italiane agree to underwrite the October capital increase to the tune of 75 million euros. That triggered complaints from rival European carriers of State aid, an accusation that the Italian government has denied. In February, German airline giant Lufthansa went further calling on the European Commission to halt Etihad's proposed investment in Alitalia, alleging the use of State aid in disguise to break competition rules.