Alitalia Just Can't Wait For Delivering Its Favored Option

[uy707]

Alitalia board chooses Air France KLM
Monday December 24, 2007
Air France KLM's nonbinding bid for Alitalia received unanimous approval from the Italian airline's board Friday, setting up an intriguing debate next month when the government will have to decide whether to turn over ownership and management of its flag carrier to a foreign company.

The Italian government has indicated that it will have the final say on who buys its 49.9% stake (ATWOnline, Dec. 21), but the five-member AZ board made it clear Friday that it will be a strong advocate for the Franco-Dutch bid rather than that submitted by Italian carrier Air One. The board said that "given [AZ's] current critical financial condition," the AF KLM offer is "the appropriate solution to preserving the company's assets and to promote its quick and permanent restructuring, thanks to the benefit of synergies arising from the integration in a major international group of the airline industry." AF KLM and Alitalia both are members of SkyTeam.

AF KLM Chairman and CEO Jean-Cyril Spinetta said the company's hope is that Alitalia "shares the benefits of the profitable growth strategy successfully implemented by Air France KLM," and he reiterated that "it has never been our intention to make Alitalia a regional [or feeder] airline, but on the contrary to strengthen its role as the Italian national flag carrier and to win back its natural market share." Both AF KLM and AZ said maintaining the Alitalia brand is an important component of their plans.

Alitalia said the AF KLM plan calls for €6.5 billion ($9.33 billion) in long-term investment (including a €750 million capital increase), a level of job cuts consistent with its own turnaround plan, long- and short/medium-haul fleet renewal, "major upgrades" in cabins and inflight services, emphasis of Rome Fiumicino as AZ's principal hub and "the preservation of an adequate coverage of the Italian market and an appropriate level of service offered at national, international and intercontinental levels alike."


by Brian Straus

[AA 1818]

Why not just take away the three and create "Air Europe" - which has massive amounts of planes, and hubs all over Europe? How has KLM done under the AF/KLM deal? Have they restructered well?

[Petertenthije]

Why not just take away the three and create "Air Europe" - which has massive amounts of planes, and hubs all over Europe?

The problem is that both KLM and Air France have a massive name recognition and a flock of loyal customers. Not just in France and the Netherlands either. By removing the name and changing concepts you run the risk of alienating customers. Why risk it?

How has KLM done under the AF/KLM deal? Have they restructered well?

KLM was profitable at the time Air France took them over. So really there was not much re-structuring to do.

There has been a streamlining of operations though. Some destinations that where only barely viable have been combined. Thus instead of a flights from AMS and CDG there would be only a flight from AMS or CDG.

For the cargo operations KLM Cargo and Air France Cargo have merged more thoroughly. This is also illustrated in that KLM's 4th 744F (PH-CKD) was delivered directly to AF a few years back. It should go to KLM some time next year. Likewise Air France Regional will hand over its F70s to KLM Cityhopper late next year.

Over the next few years KLM and KLM Cityhopper will receive 39 new planes. At the moment retirement dates for 10 planes have been set. The retirement of IIRC 7 more F100s has been announced but without a timeframe. Still, that would mean an increase of 22 planes over the next few years assuming no further retirements (MD11s likely) are announced.

Just to add, the above numbers do NOT include Transavia which is 100% KLM owned. They do not include VLM either (KLM/AFs latest acquisition flying 18 F50s and a BAe146). So really KLM is doing quite nicely.