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Air France Buys Into Alitalia

Air France to Buy 25% of Alitalia for EU323 Million  Jan 12, 2009

Air France-KLM Group, Europe’s biggest airline, agreed to pay 323 million euros ($432 million) for 25 percent of Alitalia SpA, beating Deutsche Lufthansa AG for a stake in the reorganized Italian carrier.

“Air France showed more conviction than other suitors,” Rocco Sabelli, chief executive officer of CAI, Alitalia’s owner, said today at a press conference in Rome. The tie-up with Paris-based Air France should deliver 720 million euros in savings and additional revenue over three years, CAI said.

Alitalia was put into bankruptcy on Aug. 29 after political and labor opposition thwarted two years of attempts to sell the Rome-based airline, which was 49.9 percent state- owned. CAI on Dec. 12 agreed to buy Alitalia’s main assets and to combine it with smaller rival Air One SpA before bringing in a foreign airline as minority investor.

Alitalia will operate as a new company starting tomorrow. Air France will take its stake by subscribing to a capital increase, the carrier said in an e-mailed statement. It will get three seats out of 19 on Alitalia’s board and two out of nine on the executive committee.

“This is a good deal for Air France,” said Jonathan Wober, an analyst at Societe Generale in London with a “buy” recommendation on the French company’s shares. “The Italian market is one of the biggest in Europe. Milan in particular is a very good business market.”

The agreement means Alitalia will remain a member of Air France’s Skyteam global airline alliance.

Lufthansa Proposal

Lufthansa, Europe’s No. 2 airline and a leader of the rival Star alliance, said by e-mail that it wasn’t surprised by the Italian decision and that it hadn’t had access to the commercial data needed to make a firm bid. The Cologne, Germany-based company said it had approached CAI with proposals for a collaboration that included Alitalia joining Star.

Lufthansa had sought to become CAI’s partner after abstaining from earlier bids because of Alitalia’s debt. CEO Wolfgang Mayrhuber said in November that he was optimistic about being chosen because of Lufthansa’s multihub strategy.

Italy’s Northern League party, coalition partner with Prime Minister Silvio Berlusconi, had backed Lufthansa as more likely to boost traffic at Milan Malpensa airport.

A joint statement from Alitalia and Air France-KLM said their partnership will be based on multiple hubs, with Malpensa and Rome Fiumicino joining on an equal basis alongside Paris Charles de Gaulle and Amsterdam Schiphol.

Cooperation Vital

Roberto Colaninno, chairman of CAI and now of the new Alitalia, which will subsume the investment group, said the agreement should encourage growth at the airline and increase competitiveness for Italy. Air France Chairman Jean-Cyril Spinetta said cooperation was vital given the challenges facing carriers amid the global recession.

The deal with Air France includes a lock-in commitment for CAI investors to maintain their combined holding in Alitalia for four years. From the fifth year, existing shareholders will have first right of refusal on any stock put up for sale, in proportion to the number of shares they hold. From the third year, a stock-market listing would annul the pact.

CAI includes more than 20 investors, among them the Benetton family’s toll-highway operator Atlantia SpA and Intesa Sanpaolo SpA. Its takeover of Alitalia was valued at 1.05 billion euros, including 625 million euros of debt.

Air France-KLM was advised by Lazard Ltd. Intesa Sanpaolo advised Alitalia throughout its reorganization and search for investors.

Air France to Buy 25% of Alitalia for EU323 Million
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