Air France-KLM pursuing Alitalia deal

Posted on January 31, 2008 by Matthieu Desiderio

While Italy is suffering a political crisis, Air France-KLM and Alitalia announced they are still working on their merging project. Since mid-January, both airlines started exclusive talks to elaborate their industrial program, following Romano Prodi’s government agreement at the end of 2007.

The project and a final proposal would be finalized in two months maximum, by mid-March 2008. However, many Italian politicians are opposed to AF-KLM offer to buy Alitalia, partly owned by the Italian governement (49.9% shares). Northern rightists are especially uneasy with the potential decision of the French-Dutch airline to reduce traffic at Milan-Malpensa.

Dealing with both stockholders and Italian government

Air France is convinced the deal is a good operation since both airlines have already been cooperating on profitable flights between France and Italy. Air France officials estimate that Italian market is still really important even though Alitalia went under the 60-to-70% market share that a national airline usually have on its territory. According to Air France officials, bringing Alitalia in its group will be the way, and even the only way, for the Italian company to catch-up with economic growth.

To conclude the deal, Air France-KLM will have to satisfy the needs and wishes of many actors, and not always easy ones: Alitilia employees and their unions, the Italian government, and AF-KLM stockholders. To ensure its success, Air France-KLM proposal is quite similar to what Maurizio Prato, President of Alitalia, proposed last year (fall 2007) including moving traffic from Milan to Rome, and also cutting around 2,000 jobs.

A good move for both sides

A thing that Jean-Cyril Spinetta, Air France-KLM President and CEO, never refused to share with its employees and partners: this deal is a good deal. On the outside, transportation specialists and consultants are convinced the French-Dutch group will benefit from this financial operation: doing such a good move will allow Air France-KLM not to let other European airlines like Lufthansa or British Airways take over the Italian company. Also, AF-KLM group will remain the airline consolidation leader in Europe…

With the Open Skies Agreement coming on April 1, 2008 (see: Toward the (US-airlines)-Open Skies, January 29, 2008), it would be interesting to see if the newly formed company could take advantage of the merge to propose real new offers to their customers…

References

Article: Crise politique en Italie : Air France-KLM travaille toujours sur Alitalia, Les Echos, Jan. 30, 2008 (paper edition)
Article: Pour Air France, la reprise d’Alitalia n’est pas risquée, Le Monde, Jan. 8, 2008 (paper edition)
Website: Air France Corporate site: here
Website: KLM Royal Dutch Corporate site: here
Website: Alitalia Corporate site: here