An old historic Alitalia livery on a new A321: Andre Wadman for Wikipedia

There is much to read between the lines in Etihad issuing a deadline for its taking a stake in troubled Italian flag carrier Alitalia.

Etihad Airways and Alitalia have entered the final phase of a due diligence process about a possible investment by Etihad Airways in Alitalia, James Hogan, President and Chief Executive of Etihad Airways, and Gabriele Del Torchio, Chief Executive of Alitalia, confirmed today.

During the next 30 days both companies and their advisors will determine how a common strategy can be developed which meets the objectives of both parties.

Any issues that may prevent the establishment of an appropriate business plan will have to be resolved to ensure the plan can be implemented to move Alitalia to sustainable profitability.

If an agreement is reached it will be the Abu Dhabi carrier’s keystone European investment, after its stakes in Germany (AirBerlin-29.21%), Eire (Aer Lingus-2.98%), Serbia (Air Serbia-49%) and Switzerland (Etihad Regional by Darwin Airlines-33.3%).

Alitalia’s existing and potential network within and beyond Europe, and its brand profile in the US in particular, would make this a strategically invaluable  investment.

But it is a profoundly difficult proposition. Just ask Air France KLM, which took a 25% equity and retreated, much the poorer and maybe just possibly wiser, hanging on to a 7% stake through dilution after a debt restructuring.

A good overview of the situation Etihad has to deal with in financial terms is found in this New York Times report.

However the political and public aspect of any Etihad investment is formidable. Etihad, like its Middle East peers in Emirates and Qatar Airways, are pilloried on a regular basis by the EU’s version of shock jocks, playing on anti-Arab pro-protectionist buttons to mobilise public antipathy, while professional pilots and major carrier managements including those of  Etihad commercial partner Air France KLM, and Lufthansa, tag along for the populist ride.

The ‘get the Middle East carriers’ game is blunter and nastier in Europe than it has ever been in Australia, and Alitalia’s seeming inability no matter how structured to actually run a credible commercial operation adds to Etihad’s challenges.

However Etihad does have the resources, at least on paper, to turn Alitalia around, and strongly advance its European and global goals.

The ‘old’ Alitalia was a long time ornament in Australia aviation. An Alitalia DC-8 was the first scheduled airliner to arrive at Melbourne’s Tullamarine Airport in July 1970, and it subsequently abruptly disproved the household wisdom that jumbo jets could never use Canberra Airport when one of its classic model 747s, making a tag flight between Melbourne and Sydney, landed there after an engine fire alert.

It touched down perfectly, if quickly, after declaring the emergency, although none of the airport’s roll out stairs could reach the doors until a jury rigged solution was cobbled together.

There is a metaphor in their somewhere for the Etihad-Alitalia search for a solution, although this time, it wont involve ladders, stairs and rope, but a very large sum of money and fiercer undertakings from the Italian carrier than it has previously found acceptable.

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