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Alitalia Bailout Causes Furor Across Europe


Bitter airline rivals unite over Alitalia bailout

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Jun 09, 2008

Six of Europe's leading airlines have written to the European Commission's transport tsar to oppose the Italian government's recent financial bailout of Alitalia, the stricken Italian airline.

British Airways, Virgin Atlantic, Finnair, SAS, Iberia and Tap Portugal have written a letter to Antonio Tajani, the European transport commissioner, arguing that financial aid from the Italian government to Alitalia contravenes EU competition and state aid rules.

Last month Alitalia received an emergency €300m (£240m) government loan that was converted to an asset on its books.

"It is our understanding that without this aid Alitalia would fall below the necessary capital requirements and would be required to declare itself bankrupt under Italian law and would therefore cease to operate," the six rivals wrote.

"We strongly oppose this action, as it is not the first time Alitalia receives 'life support' by the Italian government thereby completely ignoring EU competition and state aid rules," says the letter, which was sent last Thursday.

The letter will increase pressure on Tajani, himself an Italian, to take action. Yesterday it was reported that the European Commission was preparing to rule against the €300m bridging loan due to its being "incompatible with the common market".

The rival airlines have also asked Tajani to carry out a "thorough investigation" into the terms and conditions of the new loan. "We urge the Commission to maintain its strong stance in dealing with state aid issues," the letter says.

The issue of state bailouts has become one of the most contentious issues in the global commercial aviation sector. Many European airlines have opposed US government help to airlines that filed for Chapter 11 bankruptcy after the 2001 terrorist attacks, labelling it as anti-competitive.

The European airlines' letter to Tajani also lists other financial "lifelines" that Alitalia has received from the Italian government since 2000. The rivals argue that the aid enables Alitalia to "continue to distort" competition in the markets it serves by using public funds to undercut competitors' prices.

"This market behaviour is even more noteworthy given that Alitalia is reportedly losing €1.4m a day," the airlines say.

Commercial carriers are under growing pressure due to record fuel prices and the slowdown in consumer spending that is deterring people from travelling.

Last week Ryanair, the low-cost airline, said it would ground 10 per cent of its fleet this winter as it tried to cope with rising oil prices. Also last week United Airlines, the second largest carrier in the US, said it would cut flights from its schedules and slash 1,600 jobs. American Airlines, the US's biggest carrier, is also cutting capacity.

At the same time the British government plans a sharp increase in airline taxes in a bid to raise an extra £520m a year.

And last month Silverjet, the business class-only airline, suspended operations after a multi-million pound cash injection from investors failed to materialise.

telegraph.co.uk

Bitter airline rivals unite over Alitalia bailout
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