Air France-KLM buys Alitalia for a song

March 18, 2008

Air France-KLM purchased 100% of troubled Italian airline Alitalia for 10 euro cents per share of stock, solidifying Air France’s number one position in Europe.

French airline Air France, already allied with Netherlands airline KLM, acquired Alitalia over the weekend. In the deal, which is being condemned by some Italian press as highway robbery, one share of Air France was equal to 160 shares of Alitalia, effectively dropping the value of Alitalia stock by over 80% in one day. (Alitalia was last trading a EUR 0.53.)

The government of Italy had been subsidizing the money-losing Alitalia airline for over 15 years, injecting some 4.3 billion euros (over $6 billion today) into the company. This is what led Italy to accept the low-ball offer from Air France for Alitalia, which was much lower than expected, saying it had no other choice.

Alitalia transported 24 million passengers in 2007, the same number as almost a decade ago. Alitalia ranks a distant 17th among the world’s airlines.

Air France’s offer also stipulates layoffs of around 1,600 of Alitalia’s 11,000 employees, citing job-duplication and cost-cutting.

European and Italian officials will weigh in on the buyout on March 31, and the government of Italy will make a final decision on the acquisition on April 13 and 14, but it is largely considered a done deal, amid grumbles that Air France got Italy’s national airline at a fire sale price. Silvio Berlusconi had preferred an Italian solution to Alitalia woes, but said an alternative involving Air France-KLM would be possible as long as Alitalia retained some Italian identity, keeping the flag of Italy on the planes’ tails, for example. Air France has promised to retain the Alitalia name and to keep Rome as the hub of the airline’s operations.

Air France-KLM, which was already number one among European airline companies in passenger transport and number two in freight, adds to its lead with the acquisition of Alitalia.

Written by Web in France team - Filed Under Business, Featured, News

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