Mamma mia!

The impact of Alitalia’s filing for bankruptcy is going to be far reaching, and Aeroporti di Roma is likely to feel the pinch more than most. Aviation correspondent Michael Sterling assesses the impact of this latest development and investigates what is being done to prevent the airline’s collapse.

The financial distress and filing for bankruptcy of Alitalia will have a big impact on Aeroporti di Roma (ADR). While a new and much slimmed-down version of the Italian national carrier is expected to rise from the ashes, its relationship with the airport group is unclear.

There is little chance that Alitalia will suddenly cease flying as the Italian government has indicated that it favours the airline’s continuation, but in a different form. For at least six months normal airline schedules will continue while a buyer is found and restructuring is carried out.

A number of potential buyers are poised to take control, including CAI, a consortium that has put forward an offer of Euro 1 billion (US$1.4 billion) for the airline. Under the deal, Alitalia would merge with Air One, Italy’s second-largest airline, and its Euro 1.2 billion (US$1.7 billion) debt would be absorbed by a second company, which would then be liquidated.

Five of the airline’s nine unions are continuing to fight to stop redundancies and changes in labour contracts and may even prolong the process as potential investors and union representatives play a complicated cat-and-mouse game. The remaining four unions have agreed to the deal with CAI – even though it would cut 3,000 jobs.

Investors have also reportedly asked for salary cuts of up to 25% among pilots and crew. This has not gone down well, as employees claim they are already heavily underpaid compared with their peers in France and Germany.

Payment pending?

The initial concern must be outstanding payments to ADR as of the date of the bankruptcy filing on 29 August. Any fees for services provided after that date will be paid under the administration procedure.

Most of these outstanding fees are landing fees and are now caught within the bankruptcy estate of Alitalia. Recovery is uncertain – ADR, for its part, has rights to seize aircraft for non-payment of aeronautical charges, which gives it some leverage to push for full payment. It may also be due monies from subsidiaries of Alitalia, such as Alitalia Servizi.

Italian Prime Minister Silvio Berlusconi has issued a decree revising Italy's bankruptcy laws, which will leave Italian taxpayers to pay most of the airline's debts. Whether ADR will get any of this state handout remains to be seen.

Charge concerns

The second concern for ADR is the new charging framework that will rise with the new Alitalia. Fees will be renegotiated and ADR will no doubt hope that it will be able to increase airline landing fees going forward. This is not at all certain, however, as the new owners will be looking to resize Alitalia and trim costs wherever possible to make it more profitable.

“The form of the successor entity, its route and strategy, will determine the longer term impact on ADR in terms of passenger growth and capital expenditure requirements,” says Moody's credit ratings agency in a recent report on Alitalia's insolvency.

ADR's financial results for the first half of this year showed that it was under cost pressures and that it could improve its position by imposing higher charges on airlines. The danger now is that the insolvency will put a cap on these hopes, which in turn means that revenue for the immediate future will be under pressure.

Thirdly, ADR is worried that the new Alitalia will be sold without any of its current liabilities and obligations, with only its assets being carried over to the new entity.

“It is expected that a material part of Alitalia's business, and presumably certain existing obligations, will not be part of the rehabilitation,” says Moody's.

Despite these concerns, the move to relaunch the failed airline is likely to have a positive impact on ADR as it will mean that the new Alitalia will be more financially secure than its predecessor. It may even provide a solid platform for the airline to develop and attract new investment in the business.

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