Former CEO Says "Only An Exorcist" Can Save Airline

Talk about cutting off one's nose, to spite their face. The controversial -- but, in the eyes of many analysts and investors, absolutely necessary -- sale of Italian flag carrier Alitalia appears to be dead in the water Thursday, after new demands from the beleaguered airline's unions sent negotiators from Air France-KLM packing.

According to numerous news reports, those unions introduced 11th-hour proposal calling for the buyers to save jobs at Alitalia... a condition Air France-KLM reportedly found unacceptable.

Current Italian prime minister Romano Prodi said unions made "a grave mistake" with those demands, reports The International Herald Tribune... and Italy's Economy Minister told parliament the only alternative may be 'emergency administration,' otherwise known as bankruptcy.

"I regretfully acknowledge the breakdown in negotiations, which is none of our doing," Air France chairman Jean-Cyril Spinetta pointedly told the media. "This is a project I have profoundly believed in and continue to do so, because it would have ensured Alitalia a rapid return to profitable growth."

The board at Alitalia held emergency meetings Thursday to discuss ways to bring Air France-KLM back to the table... but few expect the board to find a magic solution.

"I think it is pretty much over," JP Morgan analyst Chris Avery told Reuters. "There are too many unions involved, there is an imminent election and there does not appear to be a viable, concrete alternative proposal out there. I can't see how this can go forward."

As ANN reported last month, the Alitalia board accepted a $1.17 billion takeover offer from Air France-KLM on March 16. The takeover followed several attempts by the Italian government to sell off its stake in the troubled airline, including a failed auction involving just two bidders, Air France-KLM and rival Italian carrier Air One.

The subsequent French takeover -- described as "hard to digest" in one Italian editorial, and "a painful yes" -- worked out to one share in Air France/KLM for every 160 shares in Alitalia... a valuation of .10 euro per share in the Italian airline, or an 80 percent discount from Alitalia's closing stock price two days prior.

Also casting a pall on the future of Alitalia was Wednesday's sudden resignation of the carrier's CEO, Maurizio Prato, who was a fierce proponent of the Air France takeover. Following the unions' new demands, Prato left in frustration... reportedly calling Alitalia "cursed," adding "only an exorcist" could save it.

He may be right.

"Following the collapse in the negotiations between AF-KLM and Alitalia, a result of unions' opposition to the proposed restructuring plan and the political cost of the privatization prior to the Italian elections, the future for Alitalia is uncertain and it could be argued that the only option now is bankruptcy," said Frost & Sullivan commercial aviation analyst Diogenis Papiomytis. "The alternative would be for either Air One or a new investor to prepare a restructuring plan and bid for the carrier as soon as a new Finance minister is in position after the elections.

"However, with the ongoing global credit crisis, it is uncertain whether any investor can finance Alitalia's takeover and restructuring through debt," Papiomytis added. "In the meantime, Alitalia's short-term liabilities will put further pressure on a already negative climate."

Perhaps realizing they may have overplayed their hand, Alitalia's unions put on concessionary faces Thursday, going to the media with their view the government should hold off on any final decision on Alitalia's future until new parliamentary elections are held April 13 and 14. But many believe it's already too late.

FMI: www.alitalia.com/, www.airfrance.us, www.klm.com