The European Commission has asked Alitalia to reassess its proposed restructuring plan and even then looks set to rule that the carrier's planned injection is state aid. It will also be looking at Alitalia's linkup with Air France, while both carriers suffer further industrial unrest.

The revelation that Alitalia's 1996 losses of L300 billion (US$183 million) were L100 billion higher than projected scuppered the planned March clearance of Alitalia's recovery plan by the Commission. The debt-ridden carrier has now been forced to find further cost savings. But a source at the Commission suggest management may want to consider rethinking the fundamentals: 'The Commission has severe doubts about the plan's competence. Alitalia is not heading in the right direction.'

Consultants Ernst & Young, the Commission's advisers on the proposed L3,000 billion (US$1.8 billion) capital injection by holding company IRI and as yet elusive private investors, has determined that the capital constitutes state aid. Their report for the Commission suggests the aid is administered in tranches similar to that of Air France.

Alitalia and the French carrier are also under scrutiny by the Commission for their proposed marketing alliance. The airlines plan to start codesharing from April on flights between Paris and Bologna, Florence, Turin and Venice, and on Lyon-Milan and Strasbourg-Lyon-Rome. The deal ties up the Franco-Italian market apart from the main routes between Paris and Milan and Rome. The total market was 2.5 million passengers in 1995.

Air France's senior vice president international Jean-Claude Baumgarten refutes suggestions that the state aid issue could get in the way of the planned alliance: 'Receiving state aid can't prevent an airline from strategising.'

But John Balfour of lawyers Frere Cholmeley speculates that the deal may be prohibited under state aid conditions or that the carriers may have to give up slots, but he admits both measures 'would be a novelty' if the agreement is restricted to codesharing.

Further cooperation between the two carriers looks likely. 'The agreement is currently very limited. Like all marriages you need a certain period of time to test how solid the bond is. If it works out, we plan to widen the agreement in the future,' adds Baumgarten.

Unfortunately for both, commonality between the two airlines extends to its unions. Both Alitalia and Air France Europe unions went on strike in February and threaten further wildcat strikes until they achieve better remuneration.

Five of the six ex-Air Inter pilot unions are protesting against having their wages cut by 15 per cent on average once the unit is merged into Air France in September. The unions are exasperated at being excluded from discussions on future working conditions between Air France unions and management. SNPL, which represents Air France pilots as well, has not joined the strikes. Vice president Serge Martinez labels the action 'a stupid suicide bid.'

Alitalia's main cabin crew union, Sulta, and the ground and cabin crew union, FIT, are both planning further strikes to protest against the poorer conditions they will face when low-cost subsidiary Alitalia Team, is merged into Alitalia. Lamberto Contigliozzi of Sulta says Alitalia plans to accelerate the planned transfer of all 2,000 Alitalia flight attendants into Alitalia Team's wage structure by 2000. He predicts all attendants will be in Alitalia Team within a year - 800 have already moved.


Source: Airline Business