Andy Nativi/GENOA

The Alitalia Group is in talks with the SAirGroup over co-operation in the Italian charter market and has initiated a reorganisation of its businesses after reporting net losses of L495 billion ($225 million) for last year.

The Italian carrier points to a series of factors being responsible for the losses, including the breakdown of its alliance with KLM and setbacks at its Milan Malpensa hub, rising fuel costs and exchange rate problems against the dollar.

Alitalia's financial situation deteriorated last year after the company achieved a small profit in 1999. Despite turnover rising 12% to L10,575 billion, the net loss would have been even worse without the beneficial effect of L66 billion in extraordinary income. Losses are expected to continue this year, but at a reduced rate. The results also show a sharp increase in debts to L1,467 billion from L179 billion the previous year and a reduction in cash flow.

Recently appointed chief executive Francesco Mengozzi has lost little time in moving to reorganise the ailing airline with the removal of at least one layer of management and the implementation of a new organisation with five divisions. Air transportation, cargo, engineering and maintenance, airport, leisure and diversified units all report to him directly. Giovanni Sebastiani, the managing director and chief operating officer who resigned last week, will not be replaced.

Mengozzi has opted not to use the L317 billion cash generated by the sale and lease back of 20 Boeing MD-80 aircraft to reduce losses. Instead, most of the cash has been set aside to balance leasing costs of the aircraft that are due to remain in service for a further five years.

Overshadowing the financial gloom was the question of an alliance partner, following the breakdown of a deal with KLM last year. Mengozzi reckons the situation could be resolved by the end of next month - Air France and KLM are among the front runners. The Dutch airlines' move back into the frame was partly responsible for the demise of Domenico Cempella as chief executive.

Despite SAirGroup's financial problems and change of strategy towards alliances, Alitalia continues to be linked with early favourite Swissair. Speculation heightened last week as it became clear the two airlines were seeking a deal to establish a joint charter operation on the back of a combination of Alitalia's Eurofly charter arm and at least part of the Volare group, which is 49% owned by SAirGroup. The agreement should provide SAir with an opportunity to reduce its involvement in Volare while allowing Alitalia to stem heavy Eurofly losses.

Source: Flight International