Shareholders still to decide on cost-cutting moves including sale of Rome headquarters to put carrier back in the black

Alitalia's board has given the go-ahead to a plan designed to return the airline to profit after suffering a record net loss of €907 million ($791 million) last year. Having recently reached agreement with the unions for the cost-cutting plan, Alitalia shareholders are due to meet in mid-May to approve it.

Alitalia's operating loss of €326 million last year was coupled with a €537 million charge relating to restructuring, along with higher fleet-leasing costs and worse than forecasted depreciation of fleet assets. Net debts rose from €758 million to €998 million. Turnover for the year was down 2.3% to €5.34 billion.

The plan to return Alitalia to the black calls for the sale of assets, including its headquarters building in Rome, the Eurofly charter arm and tour operator Italiatour. The board has also approved the sale of Sigma, the exclusive distributor in Italy of the Galileo International reservation system, to Galileo owner Cedant - a move that should raise over €100 million.

To cope with the losses, Alitalia will take up the full €370 million of state funding authorised by the European Commission in 1997, which will raise the state's holding in the airline from 53% to 62.4%. The government provided a first tranche of €258 million in December last year.

This will be followed by a €1.43 billion re-capitalisation, split equally between issuing new shares and convertible bonds. Shares and five-to-seven-year bonds will be issued at a nominal price of €0.37, with the Italian government subscribing to €890 million worth of shares and bonds.

Alitalia is confident that the rest of the shares will find buyers, and has reached an agreement with a banking consortium of Merrill Lynch, Sanpaolo-IMI and Unicredito to place surplus shares and bonds on the market.

The flag carrier has convinced trade unions to accept workforce reductions through voluntary early retirements and other cost-cutting measures by offering them free warrants for up to 180 million shares at €0.37, to be exercised next year (Flight International 2-8 April). The unions' original demand for Alitalia shares, as in a previous agreement in 1996, was turned down.

Alitalia hopes that fresh investment, a restructuring plan, reduced costs and its membership of the SkyTeam alliance with partners Air France and Delta Air Lines will help it to bounce back. The airline also expects that its restructuring will allow it to spend €907 million on further fleet modernisation over the next two years.

The partnership with Air France will be strengthened, with each carrier taking a seat on the other's board by the end of this month. Later on, the two airlines will exchange shares worth up to 3% of their capital.

Source: Flight International