Italy: How not to rescue an airline

ONLY the most gullible or optimistic Italians ever believed that the Phoenix Project launched with great fanfare five years ago would allow Alitalia, Italy’s bankrupt flag-carrier, to soar to profitability. Half-year results approved on September 26th showed a net loss of €294m ($ 386m), taking total losses since the end of 2008 to well over €1 billion. Its share capital eroded, bleeding cash, with only €128m left, including unused credit lines, Alitalia has run into near-terminal turbulence.Poor strategy has played a part but much of the blame for Alitalia’s misfortunes lies with Silvio Berlusconi, the former prime minister, who exploited the airline’s difficulties in his election campaign in 2008. He blocked its sale to Air France-KLM, a Franco-Dutch airline, a decision that cost Italian taxpayers an estimated €3 billion. Mr Berlusconi’s wheeze was to encourage a group of “patriotic” businessmen, headed by Intesa Sanpaolo, the country’s biggest bank, to take over the assets of the airline, which had been put into administration in August 2008.The patriotic group, including Pirelli, a tyremaker, and Benetton, a fashion group, were joined by Air France-KLM, which took a 25% stake in the venture. Project Phoenix got under way in difficult economic conditions and faced increasingly tough competition from low-cost airlines and high-speed trains on Alitalia’s most profitable…

The Economist: Europe

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