Tom Gill ROME

Times have been better for Italy's flag carrier. An alliance remains elusive, privatisation has yet to be completed and its financial situation appears bleak.

The departure in February of chief executive Domenico Cempella, after more than four years at the helm, appeared to be the final blow. The focus is now on new chief executive Francesco Mengozzi - a manager whose experience is entirely within Italy's state sector and who has virtually no profile in the industry.

One of Mengozzi's first moves appears to be seeking improved relations with the European Commission. He has publicly tempered the suggestions made by his predecessor Cempella about starting legal proceedings against the Commission for having wrongly - as the European Court of Appeal found in December - imposed capacity and price constraints on the airline for a state capital injection in 1997-2000.

And following the airline's announcement last December that it was abandoning the search for a European partner, Mengozzi has re-started alliance discussions. In early March, he met with Air France president Jean-Cyrill Spinetta with a view to a non-equity commercial agreement that could pave the way for entry into SkyTeam. He is also planning to re-open talks with Swissair and KLM, after the latter pulled out of a merger deal with Alitalia last year. Furthermore, Mengozzi has set up a "strategic" committee to examine the alliance choices, and to look at fleet renewal and expansion policy - a move that could signal a wider management shake-up.

Many analysts, including Chris Tarry at Commerzbank in London, believe Air France and its US partner Delta Air Lines is Alitalia's best bet, bringing the most advantageous network and traffic advantages, especially over the Atlantic where the Italian flag carrier lacks the fleet to fully profit from the US open skies agreement. "KLM/Alitalia is good. Air France/Alitalia is even better," says Tarry. "Alitalia is focusing on the North Atlantic and that's exactly right."

Sorting the finances out is Mengozzi's other major challenge. Debts are estimated at around c1.5 billion ($1.4 billion) while some analysts see operating losses widening from c106 million in 1999 to c180 million in 2000. The degree to which the carrier's balance sheet has deteriorated will be revealed in its soon-to-be-published annual report.

But Mengozzi has other problems. Mariano Frey, managing partner for Roland Berger consultants in Italy, which advised Alitalia's shareholding pilots on the company's strategic plan before Cempella's departure in February, says political interference is one of them.

Six government decrees on Alitalia's troubled northern hub - Milan Malpensa - have not helped the airline's longer-term planning, he says, adding that its current 70 frequencies out of Malpensa is the minimum number necessary for it to compete with Zurich, Frankfurt, Paris, London and Amsterdam.

And while the government has recently made a commitment to keep its nose out of Alitalia's affairs, unfortunately for Mengozzi, Rome is likely to see a change of the political guard following general elections in mid-May.

Source: Airline Business