Auctioning Off A State-Owned Airline Not Easy Task

With less than a week to go before final offers are due, Italy is said to be doing its best to prevent a collapse of the sale of its national airline, Alitalia. The only real contender is small domestic carrier Air One... and it is actively trying to raise the funds it is bidding with.

The carrier is currently worth about $1.5 billion by stock market value. One option would be for Rome, which holds 49.9 percent, to bring in banks to prop up the sale of the carrier. But that only postpones the problem, according to one senior European airline executive.

"You see this all the time with state-owned airlines," said Frost & Sullivan aviation consultant Diogenis Papiomytis. "Bidders are interested in the beginning because Alitalia has a strong brand name and a good network, but once you see its books and how it's run -- you can't get away from the unions and the political interventionism. All of this can deter any bidder from going forward."

According to Reuters, analysts are saying with time growing short for final bid submission, the country's center-left government can't really afford a failure as it wrestles with unions on issues such as pension reforms.

Air One's annual revenues of little more than $827 million just barely matches Alitalia's losses. The carrier is reportedly talking with banks Banca Monte dei Paschi di Siena , Nomura and Morgan Stanley, a source told Reuters. Air One declined comment to the news agency.

Air One does have the backing of Italy's top retail bank, Intesa Sanpaolo in its bid. Intesa's chairman, Giovanni Bazoli, is a pal of Prime Minister Romano Prodi. He denies he has received any political pressure.

If the sale collapses, Alitalia says it can keep operations going for about a year, but more cash will soon be needed. Italy would then find itself between the proverbial rock and hard place.

If the country lets the airline go bust, it risks strikes and layoffs among some 20,000 workers. On the other hand, if it supplies the needed cash to keep the carrier going, it risks the anger of rival airlines, not to mention the European Commission.

As ANN has reported, low-fare carrier Ryanair has already filed suit against the EC for what its calls illegal "injections" of money into large carriers such as Alitalia.

Air France KLM, Alitalia's long-time commercial partner, isn't interested unless the company is turned around and major changes are made.

American buyout fund MatlinPatterson re-entered its bid last month, after Russian carrier Aeroflot theirs. But no one is really expecting MatlinPatterson to submit a final offer by the July 23 deadline, according to Reuters.

"We do not see Alitalia making a profit in any of the next three years," J.P. Morgan analysts said. "If no change in ownership occurs, this group will face a liquidity crisis in due course, in our view."

"Alitalia is not exactly a beautiful wife that can find a wonderful prince," said Oliviero Baccelli at Bocconi University's transport economics research center. "We are at the same point we were several months ago, perhaps much worse."

Gee... any takers?

FMI: www.flyairone.it/en, www.alitalia.com