Italian flag carrier Alitalia looks to have secured its short-term future after banks agreed to underwrite a new share issue. But concerns about its long-term prospects remain after a deal was struck with unions which will mean that a proposed 2,500 cut in its workforce is ditched.
Alitalia is planning a €1.43 billion ($1.27 billion) recapitalisation, split between the issue of new shares and convertible bonds. In addition, the carrier will use the €370 million of state aid authorised by the European Commission in 1997, but subsequently blocked until the Italian government won a court case against Brussels last year. Alitalia chief executive, Francesco Mengozzi says the share sale will take place soon after the shareholders meeting in May, provided that approval is granted.
This cash boost comes on the back of a net loss of €907 million last year. "The vicious circle of continuous operating cash-flow losses and spiralling debt to replace the aircraft fleet is unsustainable," says Andrew Light, analyst at Schroder Salomon Smith Barney.
In order to attract investment in a climate which is hardly conducive to beleaguered flag carriers, the share and bond offer has been priced at €0.37 share, which is around a third of the average share price in the first quarter of the year. The bargain basement price ensures that Banca IMI, Credit Suisse First Boston and Merrill Lynch, which are collectively managing the sale, have agreed to underwrite the deal. Existing shareholders, many of which are either employees or small investors, will be hard hit.
Alitalia has also struck a deal with labour unions to scrap the planned reduction in staff. Although the airline hopes to make some savings through freezing wages, voluntary redundancies and ending temporary contracts, analysts are not impressed.
"Alitalia's cost base is way out of kilter with the rest of the sector," says Damian Horth, financial analyst at ABN-Amro. "Without significant cost reductions it is never going to be able to compete." Horth also dismisses a planned share swap of up to 3% between Alitalia and its SkyTeam partner Air France as no more than "a token gesture" by the latter.
Source: Airline Business