Air France KLM will "propose" on March 14

Posted on March 11, 2008 by Matthieu Desiderio

Air France-KLM, number one passenger airline worldwide, received the authorization of its board on Monday, March 10, 2008, to make an offer on March 14 to buy Alitalia, owned at 49.9% by the Italian Government. The French-Dutch airline will submit a proposal to integrate the Italian airline, and this way reinforce its European and worldwide first place. Also, if the deal is concluded, Alitalia will get back the first place in the Italian airline ranking.

Romano Prodi’s Government will have to give its approval about Air France-KLM proposal on March 14, but final agreement will be settled in a month, after the Parliament elections on April 13 and 14. Opposition leader Silvio Berlusconi accepted the idea that Alitalia may be bought by Air France-KLM on condition that the airline would remain sort of “national”; the Italian Government may be financially contributing if such a solution is chosen. If present and future Italian Governments agree with this deal, Air France-KLM Group will have to wait for the European Commission approval on antitrust and competition issues.

Will petrol price impact the deal?

Since petrol price rose from $90 when Air France-KLM made its first offer to buy back Alitalia, to more than $108 today, the question is if this price increase will affect the French-Dutch company’s decisions since Alitalia’s fleet is old and ga-guzzling. Nothing has yet been told about this issue but some other costs/profits question have been raised since then.

Alitalia’s aircraft maintenance subsidiary AZ Servizi is losing a lot and was not part of the initial buy out deal. However, the Italian Government in Rome evoked the possibility to include this company in the call for tender… It may probably not change the terms of the deal but if AZ Servizi is not profitable enough, Air France-KLM will probably change the organization and management of the company and maybe integrate it to its own maintenance department.

Does Air France-KLM have strong assets?

Recently, the airline announced traffic increased 3.7% in February (in passenger-kilometers transported), compared to the same period last year, and declared its seat capacity increased 8.4% from February 2007.

Occupancy declined 3.4% to 75.5% but the offer to the customers is of better quality, and this slow down in occupancy rate has easily been compensated by a higher revenue per passenger. Also, freight traffic is up +7.8% ton-kilometers with a 68.7% rate of fulfillness of the aircrafts

Air France-KLM may be confident: the company has a strong financial situation, pursues a continuous increase in capacity and offer to its clients, and also a high quality of service that not all airlines can “afford”. The Alitalia deal will be another way for the French-Dutch airline to improve services to customers, in Europe and also worldwide.

References

Article: Air France-KLM va déposer une offre de reprise sur Alitalia le 14 mars, AFP for Boursorama, Mar. 10, 2008: here
Article: Air France-KLM: trafic passagers +3,7% en février, Easybourse.com, Mar. 10, 2008: here
Article: Air France-KLM: trafic passagers en hausse en février, tiré par l’offre, RTL Info, Mar. 10, 2008: here
Article: Le trafic passager d’Air France-KLM en hausse de 3,7% en février, Reuters, Mar. 10, 2008: here