Alitalia has lived to fight another day, after management and labour unions agreed an eleventh hour deal that will open the door to a €400 million ($485 million) bridging loan from the Italian Government.

The deal agreed with the labour unions will see 3,700 job cuts, around a sixth of the total workforce, as well as a step up in productivity. Pilot working hours are set to increase by 22%. Alitalia chief executive Giancarlo Cimoli made it clear that failure to reach an agreement would have prevented access to the bridging loan, putting the airline in administration and leaving no money to pay wages in October.

The 3,700 workforce cut falls short of the 5,000 being sought to generate cost savings of just over €1 billion annually by 2008. However, Alitalia says that the agreement should mean that gross operating margins (before depreciation and lease costs) would be "equal to those of most noteworthy operators in the industry". The plan sees the carrier breaking even in 2006.

Although it achieved a deal on labour, the government failed to reach agreement on its plan to split the company into two parts covering core flying operations (to be called AZ Fly) and other non-core activities airline service activities (to be called AZ Service).

British Airways chief executive Rod Eddington has written to the European Commission complaining that the split will enable the Italian carrier to load the airline's €1.6 billion debt burden onto AZ Service, which would effectively come under the control of state-owned companies.

Alitalia's unions have yet to agree to the split, fearing that it could lead to more job cuts. They want the two to be linked through a holding company. Alitalia stresses that a clean split between the two companies is vital if the group is to achieve its goal of privatisation, providing access to further capital as the airline seeks to implement a turnaround.

There were also signs that the political in-fighting which has dogged the carrier's battle for survival has not gone away. Welfare minister Roberto Maroni, a member of the regionalist Northern League party, has argued that Alitalia must bolster its Milan Malpensa hub in northern Italy.


Source: Airline Business