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Lufthansa asks EC to halt Alitalia-Etihad deal

Carrier complains State aid used to save Italian airline

03 February, 20:03
Lufthansa asks EC to halt Alitalia-Etihad deal (By Sandra Cordon) (ANSA) - Rome, February 3 - German airline giant Lufthansa called on the European Commission on Monday to halt the planned investment of Abu Dhabi's Etihad Airways in Italian airline Alitalia, alleging the use of State aid in disguise to break competition rules. The complaint by Frankfurt-based Lufthansa came as Alitalia CEO Gabriele Del Torchio said the troubled Italian carrier was poised to sign a financing deal with banks which was part of a 500-million-euros bailout package organized last fall by the Italian government.

"In a few hours we will sign the contract for financial with the banks, and we will give Alitalia additional financial means," Del Torchio said early in the day.

It was later revealed that banks pledged about 165 million euros, with a remaining 35 million euros to come later.

That investment is critical to Italy's cash-strapped national carrier as it struggles to survive until it can find a solvent partner, such as Etihad. However, Monday's move by Lufthansa, Europe's largest airline, could throw up a block to the plan by government-owned Etihad to invest in the Italian carrier and establish further roots in the lucrative European market. "We call on the EC to prohibit such roundabout tactics," Lufthansa said in a statement. In response, Italian transport minister Maurizio Lupi suggested Lufthansa was "afraid of competition". "We will not allow you to continue to use the European Union as an excuse to block...competition in the air transport sector," said Lupi. Still, the concerns echoed complaints last fall from other European carriers when Italy's State-owned post office Poste Italiane pledged to invest 74 million euros in Alitalia as part of the government-engineered bail-out package designed to pull the air carrier back from the brink of bankruptcy.

International Airlines Group, which owns Spanish carrier Iberia as well as British Airways, at the time urged the EC to intervene to suspend what it said was "flagrant State aid".

Italy denied the allegation but the EC asked for more information about the rescue package - in particular, the controversial cash injection from Italy's post office.

Etihad confirmed that it was in serious negotiations over a possible investment in Alitalia as Italian Premier Minister Enrico Letta made an official visit to the United Arab Emirates on Sunday.

It set a 30-day deadline to finalize a deal with Alitalia that would see Etihad buy as much as a 40% stake in the Italian carrier, the equivalent of a much-needed capital injection of 350 million euros.

The airlines issued a joint statement saying their negotiations were in "the final phase" and they were trying to arrive at a common strategy in the coming weeks. Letta said the Italian government "strongly supports the positive finalization of this agreement...we will play our part and I am sure that in Italy, all those that have a say in the matter will play their part".

Etihad has been expanding aggressively into Europe and Alitalia would give it a further foothold in a lucrative market.

After buying 29% of Air Berlin, Germany's second-largest airline, in 2011, Etihad has taken stakes in carriers across the world, including Air Serbia, Aer Lingus, Darwin Airlines, Virgin Australia, Jet Airways and Air Seychelles.

Alitalia's struggles have been well publicized.

In October, Alitalia's board approved a 500-million-euro budget package that included the 300-million-euro capital increase and 200 million euros in new lines of credit.

That included the Poste Italiane investment made in December.

However, Air France-KLM - previously, Alitalia's largest single stakeholder - refused to participate and has seen its stake in decline to about 7.1% from a previous high of 25%.

Still, Air France-KLM has said it remains committed to its eight-year partnership with Alitalia signed in 2009. Late last month, Del Torchio told unions that Alitalia was facing its "last chance" to create a new business plan to keep the troubled carrier aloft even after the emergency bailout packaged organized by the Italian government.

Sources have said that Alitalia's revised industrial plan includes deep cost reductions, efficiency gains, and other measures to beef up competitiveness.

That may include 200 million euros in spending cuts and 2,000 layoffs, half of those coming from expiring work contracts.