12/02/12, 14:05:13 EST

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Air France-KLM Ready To Talk If Alitalia Wants

money.cnn.com

PARIS/MILAN - Air France-KLM said Wednesday it is still interested in an eventual alliance with ailing Italian carrier Alitalia provided the conditions are right.

Air France-KLM Chairman Jean-Cyril Spinetta said his airline hasn't heard from Alitalia regarding a new plan being put together to keep the airline flying while it talks to interested partners.

At a news conference to present a new boarding satellite at Charles de Gaulle airport, Spinetta said he has "no opinion" on a new plan for Alitalia, the broad outlines of which were submitted to the Italian government at the end of last week. But in a signal that's likely to make waves in Italy, he said that if Air France-KLM is approached by Alitalia, "we will listen attentively."

Spinetta told Dow Jones Newswires that his airline hasn't been in contact with private equity firms. Press reports in Italy had suggested recently that Air France-KLM might team up with investment funds such as Texas Pacific Group or Apax Partners to submit an offer.

Under Maurizio Prato, the company's third chairman in six months, Alitalia's board meets Friday to finalize details of the latest in a series of plans to designed to secure a future for the ailing carrier.

Beset by stiff competition from low-cost carriers and hobbled by stubbornly high operating costs, Alitalia is losing close to EUR2 million a day.

An earlier partial privatization plan collapsed after all potential buyers withdrew their interest. Details of the plan are expected to be made public after the Alitalia board meeting Friday.

Yet to be decided is the size of a capital increase that the board believes is essential to give the 49.9% state-owned carrier breathing space. Its net debt is over EUR1 billion and its market capitalization has shrunk to under EUR1.2 billion. Alitalia could also try to cut as many as 1,000 jobs in the plan. Alitalia's flight and ground operations employ about 18,000 workers.

As well as dealing with financial issues, Alitalia must also find a way out of a strategic mess after a government plan to auction a controlling stake in the airline collapsed in July when the last approved bidder pulled out.

Last week, Alitalia said it has hired Citigroup Inc. (C) to provide financial advice as it sounds out potential future owners of the company.

Airline officials, speaking privately, say Alitalia is focusing on the Italian operational and industrial aspects of the recovery plan.

In meeting with labor representatives earlier this week, Alitalia officials outlined plans to cut 150 flights a day from the airline's Milan Malpensa base, while stepping up operations from its Rome hub. The flights are mainly feeder services to unprofitable intercontinental routes that Alitalia wants to cut from Malpensa, the labor representatives said.

According to those labor officials, Alitalia management cited the Malpensa- Shanghai routes the company currently operates as an example of a money-losing route, saying that the Italian airline loses the equivalent of about EUR30 million a year on it.

Air France-KLM Chief Operating Officer Pierre-Henri Gourgeon commented that Alitalia's financial situation is "difficult and complex."

He said other airlines that have experienced financial difficulties in the past, such as Austrian and Swiss, managed to turn around their operations by slashing long-range routes.

"When things aren't going as well as they should, you lose a lot of money very quickly on long-range routes. The way to stop the bleeding is to slash the routes that are loss-making or uneconomical. Then you concentrate your marketing efforts on filling planes and building up revenue on more profitable routes, so as to create a solid base from which to add new routes at a later date," Gourgeon said. "If you don't do that, you get ruined pretty quickly," he noted.

Regarding Air France's interest in Alitalia, Gourgeon said: "Our conditions haven't changed. Alitalia must have a recovery plan that allows it get to break even on a stand-alone basis."

Secondly, the Italian airline must want and need an industrial partnership with another airline, he said, and thirdly there must "measurable and identifiable synergies."

Air France-KLM already has a commercial partnership with Alitalia through the Skyteam alliance.The pair also have a cross-shareholding agreement, each having a 2% stake in the other.

In Milan, Alitalia shares spiked on the news that Air France-KLM is still interested in talking. The stock gained 1.5% in a weak market within the first few minutes after Spinetta's comments before eventually drifting to close 1% lower at EUR0.97. Traders said investors were cheered by the prospect of an Air France-KLM move for Alitalia. Milan's S&PMib index of blue chip stocks ended the day 2.4% lower.

In Paris, Air France-KLM shares fell 3.3% in an overall market that was down 2.1%.

Spinetta also said Air France-KLM is continuing to study a possible alliance with Spanish airline Iberia (IBLA.MC).

Air France-KLM had said in May it was looking at a possible alliance with the airline.

"It's a dossier that we're trying to evaluate. We haven't taken any other initiative except to study it," he said.

Air France-KLM has said consistently it is in favor of further airline consolidation in Europe and cites the merger of Air France and KLM as a good example of how pooling forces can allow airlines to grow their businesses faster than they could individually. Spinetta predicted other mergers and alliances will surface in the coming months.

 Printable Version  | published Sep 05, 2007