Bidders Have One Month To Work Up Offers

The Italian government has given potential buyers until January 29 to submit bids for the state's share of the country's flagship carrier Alitalia.

The airline has struggled with rising costs -- especially labor costs -- and declining revenues as customers flock to the many low-cost carriers cropping up across Europe. Experts say the airline's politically-driven purchasing choices leave it with five different types of aircraft from as many manufacturers.

Early this month the government announced it would scale back its ownership and seek an international buyer to help reorganize the airline and bring it back to profitability after five years in the red. Government efforts at reorganization have been unsuccessful. Alitalia's CEO Giancarlo Cimoli says the airline can survive for about a year on its current cash reserves.

The government has placed restrictions on potential bidders that may sour the deal for some. According to a statement from Italy's finance ministry, any buyer must agree to purchase at least a 30.1 percent controlling stake and hold it "for a period of time in line with the pursuit of the industrial plan" that Alitalia will adopt.

Italian law requires any buyer of more than 30 percent of a company to make an offer for any outstanding shares.

In the statement, the government says "necessary and non-negotiable" terms for the sale are the protection of Alitalia's "national identity," and maintaining the "quality and quantity" of domestic service.

It says further details of these requirements will be revealed at a later date, and it's the devil in those details that may doom any purchase offer before it's ever made. The airline's bloated labor unions have led many to accuse it of running a "jobs program" instead of an airline. Industry observers say limits on how a prospective buyer may handle labor disputes could make it impossible for Alitalia to ever show a profit.

The government says if it can't find a bidder on its terms it may seek to offer shares publicly, or use share swaps. One way or another, the government seems determined to get out of the airline business.

The airline's unions responded to the request for bids by calling a strike to begin January 19. The union says it fears "uncertainty" surrounding the future of the airline.

Because it wouldn't maintain minimum service levels required by Italian law, the state commission that regulates them is calling the union's vow to strike "irregular." Under Italian law, the union would face a fine if it follows through on its threat.

FMI: www.alitalia.com