Alitalia Pilots Agree to Government-Backed CAI Bid

By [bn:PRSN=1] Marco Bertacche [] and Steve Scherer

Sept. 27 (Bloomberg) -- Alitalia SpA, Italy's national airline, moved a step closer to averting collapse after pilots agreed to a government-backed takeover by a group of business executives.

Unions representing most of Alitalia's 2,500 pilots reached an accord with the CAI group led by Roberto Colaninno early today. The Rome-based carrier's ground staff had already approved the plan to eliminate about 3,000 jobs and impose longer hours for the same pay. Flight attendants unions said they are ``making some progress'' and will meet with CAI again on Sept. 29.

``The agreement with pilots allows us to look at coming days with great serenity,'' Transport Minister Altero Matteoli told Sky TG24 television in an interview broadcast today. ``Now we can let planes take off.''

Colaninno, chairman of scooter maker Piaggio & C. SpA, assembled a group of investors who want to merge Alitalia's flight business with domestic competitor Air One SpA to create an airline that controls more than half of the Italian market. Alitalia was losing $3 million a day when it declared insolvency on Aug. 29 to allow the state-backed rescue plan to begin.

Alitalia's bankruptcy administrator warned this week that the carrier didn't have enough cash to survive beyond this month. The airline, which flew 25 million travelers last year, risked becoming the first major European flagship carrier to collapse since Swissair Group and Belgium's Sabena in 2001.

Attendants Hold Out

There will be fewer job cuts for pilots than CAI had originally planned, said Massimo Notaro of the Unione Piloti association. The new proposal includes hiring about 140 part-time pilots and a separate contract for captains, the government said in a faxed statement.

Seven of nine Alitalia unions have now signed the agreement, with Sdl and Avia, representing most of the flight attendants, still considering the latest terms.

Prime Minister Silvio Berlusconi pledged during his election campaign in April to save Alitalia, which employs about 19,000 people. He said Sept. 18 that the carrier ``may be on the edge of the abyss'' after CAI halted negotiations when it failed to win over most of the unions.

CAI, whose investors include the Benetton family, revived its offer Sept. 25 with new concessions, such as more days off for pilots and cabin crews. Berlusconi's government also is trying to entice international airlines to join CAI, in part to help keep the unions in line.

``This agreement allows Berlusconi to fulfill his campaign promise and was possible after better conditions to pilots were offered,'' said Angelo Drusiani, who manages the equivalent of $1.9 billion of bonds at Banca Albertini Syz & C. in Milan, in a Bloomberg Television interview.

Big Names

Colaninno, former chairman of Telecom Italia SpA, has pledged along with at least 16 partners to invest about 1 billion euros ($1.46 billion) to buy Alitalia's commercial flight assets. The group includes Atlantia SpA, the toll-road company controlled by the Benetton family.

The partners intend to return Alitalia to operating profit in two years.

``It's a high-risk investment for the bidders,'' Drusiani said. ``Competition is so strong and they need a very robust industrial plan, boosting long-haul flights, if they want results.''

Fuel costs and slowing traffic growth are forcing many airlines to reduce capacity and slash jobs to bring down costs. The eight largest U.S. carriers plan to cut almost 26,000 workers starting this month as they park 465 airplanes.

Airline Failures

At least 24 airlines have filed for bankruptcy or ceased flying this year, the International Air Transportation Association said in June. Several more have folded since then, including Zoom Airlines, a trans-Atlantic carrier based in Ottawa and at London's Gatwick airport, which failed in August.

Alitalia administrator Augusto Fantozzi met Italian civil aviation authority Enac Sept. 25 and convinced the regulator to allow the carrier to continue to fly. CAI has extended its offer for Alitalia to Oct. 15, Fantozzi said, adding that the Italian airline will not ground additional flights.

Italy has been trying to sell Alitalia for more than two years. Union opposition scuppered an offer from Air France-KLM Group in April. Berlusconi also fought the Air France bid during his election campaign. Upon taking office in May he hired Intesa Sanpaolo SpA, the country's second-biggest bank, to design the rescue and find investors.

Competitor Interest

Air France, Deutsche Lufthansa AG and British Airways Plc have expressed interest in buying a stake in Alitalia, Fantozzi has said. Lufthansa has said it's monitoring the situation, and Berlusconi said last week that the German carrier would be the best partner for Alitalia. Lufthansa Chairman Wolfgang Mayrhuber was in Rome yesterday ``at the request of the Italian government,'' spokeswoman Claudia Lange said.

Lufthansa ``is interested'' in a stake in Alitalia, Luigi Angeletti, leader of the airline's third-biggest union, UIL, said after meeting the German ambassador in Rome yesterday.

Alitalia had originally been due to participate in the 2004 merger of Air France with KLM that formed Europe's biggest airline. Instead, Alitalia was excluded and told to improve its finances. It has lost almost 3 billion euros since then.

Alitalia shares were suspended in June after falling almost 45 percent since the start of the year, leaving the carrier with a market value of 617 million euros. It has one outstanding convertible bond and the government owns most of that debt. The Italian government has a 49.9 percent stake in Alitalia.

To contact the reporters on this story: Marco Bertacche in Milan at mbertacche@bloomberg.net; Steve Scherer in Rome at sscherer@bloomberg.net;