Loss-making  Alitalia  is staring the possibility of liquidation in the face after the decision by all remaining bidders to withdraw from the privatisation process.

Fellow Italian carrier Air One dropped out of the bidding process in July ahead of the deadline for final bids, citing restrictive conditions that would have prevented it from restructuring and turning around Alitalia. The only remaining contender, US private equity firm MatlinPatterson, followed suit a day later. Russia's Aeroflot withdrew from the race in June.

Air One's affiliated company AP Holding says it had put together a plan to make Alitalia the fourth largest carrier in Europe, but the conditions in the sale contract would not have allowed it to implement its plan. However, it does not rule out the possibility of returning to the table should conditions change: "Although at this time it is impossible for AP Holding to bid for the privatisation of Alitalia, it states again its availability to commit to Alitalia's revamping. But a new interest in such an operation can be sparked only by different purchase conditions."

Air One, meanwhile, has unveiled plans to operate its own long-haul services next year with a new fleet of leased Airbus A330s. The carrier now operates short-haul domestic and international flights with a fast-expanding fleet of 50 narrowbodies and regional jets.

Oliviero Baccelli, deputy director of Bocconi University's Centre of Regional Transport and Tourism Economy in Milan, believes only fellow SkyTeam member Air France-KLM can save Alitalia. But he admits this looks unlikely as Air France-KLM is mulling a possible bid for Spanish carrier Iberia: "If it could choose, I'm sure it would go for Iberia." This would leave liquidation as the only realistic option, he concedes: "I'm pretty sure liquidation is the second solution and I think we are closer to that."

Air France-KLM has consistently been linked with a possible bid for Alitalia. However it maintains that such a move has not been on its agenda since it decided against participating in the privatisation earlier this year on the grounds that conditions for improvements to Alitalia's financial position had not been met. Alitalia, in which the finance ministry has a 49.9% stake, incurred heavy losses in 2006 and has been plagued by industrial action.

Referring specifically to Iberia, however, Air France-KLM says: "In Europe, Spain is one of the major markets and Iberia an important player in air transport. It is therefore quite normal for it to be examined among others."

Source: Airline Business