Alitalia starts bankruptcy proceedings as Etihad cuts off funds

Alitalia started bankruptcy proceedings for the second time in a decade, throwing the survival of Italy’s flag carrier in doubt after the airline failed to fend off budget rivals and workers rejected job cuts and concessions linked to a €2 billion (US$2.2 billion) recapitalization plan aimed at salvaging the cash-strapped Italian airline.

Shareholders voted unanimously to file for special administration, the carrier said in a statement following a meeting on Tuesday.

During a cabinet meeting convened in the evening, the Italian government approved the start of special administration approved a €600 million (US$655 million) bridge loan that will last for six months.

Alitalia, which was mainly backed by Abu Dhabi-based Etihad Airways, last week said it had exhausted all options to stay solvent. Etihad, which owns 49 percent of the carrier, said it won’t extend additional funding.

“It is clear this business requires fundamental and far-reaching restructuring to survive and grow,” Etihad Chief Executive Officer James Hogan said in a statement. “Without the support of all stakeholders for that restructuring, we are not prepared to continue to invest.”

While Etihad withdrew financial support, the Gulf carrier said it’s ready to work with Alitalia as a “commercial partner,” which effectively means that codeshare agreements continue. Etihad passengers booked on Alitalia flights can proceed with travel plans as normal, it said.

No more lifelines

Alitalia, which missed out on a round of consolidation that shored up other European flag carriers, has seen its standing further eroded since a previous bankruptcy in 2008.

Etihad’s stake purchase, part of a €1.76 billion rescue of Alitalia in 2014, was a major chance as the Persian Gulf carrier sought to transform the struggling company into a five-star operator.

The plans never panned out as budget rivals Ryanair and EasyJet further ate into its position in Italy, and a wave of terror attacks in Europe hurt tourism in the region.

With the insolvency filing, Alitalia’s board of directors “acknowledged the serious economic and financial situation of the company,” the airline said in the statement.

Job cuts, assett sales to follow?

The administrators will take over the business and present a new strategy that may entail asset sales, reduced operations and job cuts aimed at making the airline viable within two years. If a turnaround isn’t possible the administrators may order the carrier to be liquidated.

The airline, which has 12,500 employees, has been stumbling in the wake of a previous bankruptcy in 2008.

The Italian government has already ruled out a bailout.

Italian finance minister Pier Carlo Padoan said last week that the government will not pump more cash into boosting the airline’s capital. Alitalia is “a private company” and its fate is “in the hands of shareholders and management," Padoan told lawmakers in Rome on Thursday.

Economic Development Minister Carlo Calenda on Apr. 30 said he hopes the carrier can be sold as "a whole, not in pieces."

Shrinking share

Alitalia’s years of underperformance have diminished its standing within the Italian economy and the aviation industry.

The carrier’s share of the Italian market slumped to 18 percent as of 2015 from 23 percent in 2007, according to an analysis by Ugo Arrigo and Andra Giuricin of Milan Bicocca University.

Ryanair, Europe’s biggest discount carrier, now ranks No. 1 with a 23 percent share, up from 12 percent a decade earlier.

The Italian airline had a net loss of €199 million in 2015, the last year for which it has published figures.

The carrier had lost almost €3 billion since it emerged from bankruptcy in 2009, the study shows.

The special administrators will have 180 days to come up with a new plan, with a possible extension of 90 days. The process, available for large insolvent companies, is aimed at protecting a company’s assets and workers through reorganization.