Airline Debacle

The End of Italian Protectionism?

An airplane of Alitalia approaches to land at Fiumicino international airport in Rome
Is Italy ready to say goodbye to its national airline? Source: REUTERS/Max Rossi [M]

A country is seeking to raise its spirits: for example by broadcasting “dolce vita” images from the 1960s depicting film stars aboard Alitalia planes during prime time in the evening news. With special offers for flights to summer holiday destinations. With the announcement that more than 4.9 million seats have been booked. The message is clear: Things will go on, a solution will be found. After all, it’s about a status symbol, the national airline. The trauma of bankruptcy sits deep in citizens’ awareness.

But without its €600 million in public support, the company would come to a screeching halt. It now faces a complicated restructuring process with no certain outcome. No other company in Italy has gone through more bankruptcies and near-insolvencies than Alitalia. The list of rescue attempts is long; each time, losses have mounted.

There are good reasons for the ignominious decline of the airline. Competition from budget airlines is only one aspect; all European airlines are faced with this challenge. The problems go deeper; they involve Italian industrial policy and political frivolousness.

The problems are emblematic of the struggles faced by the entire Italian economy for decades. They are about finding a balance between state intervention and the free market, between the past and present. At times, this country, a member of the seven most powerful nations on earth, still seems frighteningly old-fashioned and immobile. Its export-oriented entrepreneurs bemoan this fact at every opportunity they get.

Until 2009, the airline was completely state-owned, just like almost all really big Italian companies – except for Fiat, which, by the way, has its statutory seat in the Netherlands. Even today, the state has stakes in the large energy companies Eni and Enel, the postal service and defense contractor Leonardo.

This allows the government to influence the management selection process. But the path towards privatization is irreversible; state-owned shares are declining consistently.

Things were different with Alitalia; the involvement of private investors didn’t solve its problems. First there was a group of Italian managers, then Air France-KLM, and since 2014 Gulf state-owned Etihad with a minority stake. None of them managed to slim the airline down and introduce an efficient administration.

Incredible as it sounds, privileges awarded years ago still hold true, even if they don’t fit the times. For example, €3 from every Alitalia ticket go towards a special solidarity fund that actually pays pilots seven years’ worth of unemployment compensation. Agreements and interventions have always responded to whatever direction the political winds were blowing; with the merger of Alitalia and the Italian budget carrier Air One in 2009, all anti-trust laws were simply suspended for three years.

If in fact everything goes wrong, the state will come to the rescue. This conviction is deeply rooted in the Italian mentality – especially among Alitalia employees. But also at the crisis-ridden bank Monte dei Paschi. This supposed certainty hampers innovation and change in all areas of life. The belief in a ready-to-help state has now informed the decision by the Alitalia workforce to reject the most recent rescue plan, which would have brought €2 billion into the company’s empty coffers.

But things took a different turn. The minister for industrial development undertook two measures: He appointed three provisional head managers and issued a loan for maintaining flight operations and paying salaries – nothing more. Alitalia is being prettied up and will be offered for sale. There seems to be no danger that old mistakes will be repeated. At the moment, chances are good there will be no sliding back into protectionism. Because control is being exercised by competent and credible persons who keep repeating like a mantra: Alitalia is private; the solution must be a market-based one; the special loan is being issued at market conditions and must be repaid. This isn’t the waiting-room for renationalization.

Italy’s path from decades-long protectionism to a modern, competitive industrial country is quite realistic – in spite of the sacrifices the 12,000 employees of Alitalia will have to make. There is only one hitch: The three state-appointed managers have only six months to restructure the decrepit airline. Already there are speculations over whether the deadline could be extended; after all, Italy’s electoral campaign will enter its hot phase in October. Parliamentary elections must be held in the spring of 2018 at the latest. At that point, the modernizers in Rome will have to prove that they can hold their own against politicians willing to promise anything to get votes.

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