EC Approves Rescue Loan For Alitalia

Rejecting arguments submitted by Alitalia's competitors, the European Commission today authorized the Italian government to provide a €400 million (US$498 million) bridging loan to the troubled, majority state-owned flag carrier. Alitalia's cash reserves have dwindled and without rescue aid it likely would have been forced to shut down.

The Commission said the loan must be repaid without additional state aid, and Alitalia must repay the loan within 12 months. The Italian government must submit to the Commission within six months a restructuring plan or a liquidation plan and within 12 months reduce its stake from 62 percent to less than 50 percent.

This week, British Airways said the European Union should reject the loan package because Alitalia in December 2000 was given €1.4 billion (US$1.74 billion) to undertake a restructuring. BA also cited Alitalia's capacity additions, aircraft deliveries and purchase of Gandalf Airlines. "These are not the actions of an airline going bust," said BA director of government and industry affairs Andrew Cahn. "If they were, they would be cutting back not expanding."

The European Low Fares Airline Association, which represents 11 carriers, slammed the Commission's decision. "Our members currently offer some 169 routes to and from Italy and are directly affected by the fact that Alitalia is being artificially kept alive. Competition in Italy has been seriously distorted due to repeated injections of state aid," said Wolfgang Kurth, ELFAA president and CEO of German low-fare carrier Hapag-Lloyd Express. "The European Commission is blatantly allowing state governments to protect their national airlines, while non-state owned airlines are expected to compete in a seriously distorted market.

Despite such criticisms, the Commission said its decision to authorize the rescue package does not conflict with the "one time, last time" principle that applies to restructuring aid. It also noted that the loan package is "warranted on the grounds of serious social difficulties," and cited the 30,000 jobs linked to Alitalia.

Low-fare carrier EasyJet, meanwhile, challenged Alitalia's alliance with Air France, seen as critical for the chronically unprofitable Italian carrier. In asking the Court of First Instance in Luxembourg to annul the alliance, EasyJet argued that consumer choice is being diminished and that the Commission did not secure pro-competitive commitments from Air France and Alitalia.

"Any benefits for consumers that could result from the alliance would not be sufficient to outweigh the elimination of competition on routes between France and Italy," said EasyJet CEO Ray Webster.