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Draghi’s latest coup could make money for Italy’s national airline – POLITICO

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Super Mario may be on the verge of one of his most impressive triumphs yet: cashing in on Italy’s national airline.

Alitalia was once the pride of Italy and a symbol of style and innovation. It has also been a money pit for decades and a thorn in the side of many Italian governments.

But now the sale process for Alitalia’s successor airline, ITA Airways, is moving forward, with several parties interested in the company. Drawing a line under one of Italy’s most painful corporate sagas would be a resounding success for the government led by Mario Draghi. Even more astonishing would be to book a gain on the capital invested by Rome to get the new state-backed airline off the ground, experts say.

“Given Alitalia’s history, making money from privatizing ITA would simply be historic,” said Andrea Giuricin, head of strategic consultancy firm TRA Consulting.

German airline Lufthansa and shipping giant MSC have joined forces to acquire a majority stake in ITA Airways. They made an initial offer of between 1.2 and 1.5 billion euros, two people familiar with the matter told POLITICO.

The government, which controls the airline through the finance ministry, has also received two other expressions of interest, people familiar with the matter said. An offer comes from the private equity firm Certares in partnership with Air France-KLM and concerns a minority stake in ITA; the other potential bid comes from another US private equity group, Indigo Partners, which invests in low-cost carriers such as Wizz Air.

The MSC-Lufthansa duo seems to be in the lead. Their approach – a bid for a 70% to 80% stake with a minority stake retained by the government – is more consistent than other approaches with Rome’s ambitions and is more detailed, one of the people said. The government decree on the sale process includes a strategic objective to achieve “partnerships and integrations with European subjects within the framework of global alliances”, as well as Rome’s intention to retain a minority stake. The offer also has another advantage: it would allow the government to show a profit on its investment in ITA.

Under a European Commission decision, the Italian government can inject up to 1.35 billion euros into the ITA until 2023: 700 million euros in 2021, 400 million euros this year and the remaining 250 million euros the next year. The check for this year should be written by the end of this month, but that could change depending on how the sales process unfolds.

All three bidders must have access to detailed ITA information financial data in the coming days, paving the way for possible firm offers in early May and a first agreement in June. This timetable could allow Rome to avoid the capital injection of 250 million euros in 2023.

There are many moving parts and MSC-Lufthansa’s offer is non-binding, so it is difficult to estimate the potential return to the government. One of the people familiar with the matter said that it could represent around 20-40% of the capital invested by Rome.

MSC and Lufthansa did not respond to a request for comment. MSC said in January that its interest “stems from the possibility of activating positive synergies” for the two companies in the cargo and passenger sectors. In March, Lufthansa chief executive Carsten Spohr ruled out taking a majority stake in the airline, but stressed that while Lufthansa would never have invested in Alitalia, in the case of ITA, “it’s worth to take a look.” Spohr said: “We know what we are doing in Italy, don’t worry.”

A spokesperson for Draghi declined to comment.

This may seem inconsequential to Super Mario, who is credited with rescuing the euro as president of the European Central Bank and building a government of national unity that pushes through an ambitious reform agenda in Italy. But Alitalia has baffled a succession of Italian executives. The history of the carrier over the past decades is full of strategic mistakes, failed rescues and huge losses.

Since its launch after World War II, Alitalia has burned more than 12 billion euros in funds from taxpayers and investors and most since 2008, according to estimates by Ugo Arrigo, associate professor at Bicocca University in Milan.

“Alitalia is a metaphor for our country and its trajectory, from its post-war recovery and growth to its turn-of-the-century decline,” Arrigo said.

Alitalia was permanently grounded last October, replaced by ITA, which took off on October 15 as a much smaller company than its predecessor. ITA has 52 planes and around 2,500 employees, less than a quarter of Alitalia. Its liftoff was already a big win for Draghi, whose government managed to convince European competition czar Margrethe Vestager that the struggling carrier and its successor were separate entities.

This spared the ITA from repaying illegal state subsidies given to its predecessor. Instead, Brussels ordered the former Alitalia to pay back 900 million euros in illegal state aid granted in 2017, a sum that Rome is very unlikely to recover because the company has not silver. Another EU state aid investigationin a loan of 400 million euros granted in 2019, is still pending.

Many have seen the “Draghi factor” in action in the negotiations with Brussels. The initial plan to launch a new airline, which included €3 billion in support funds, was drawn up by the previous Italian government led by Giuseppe Conte of the 5Stars group. European Commission competition regulators weren’t happy, but when Draghi took over, Rome and Brussels quickly managed to find common ground.

ITA faced a lot of turbulence in its first few months: fierce competition in a domestic market dominated by low-cost carriers, the coronavirus pandemic that is still curbing travel, and the impact of war in Ukraine. It recorded an operating loss of 170 million euros over the first two and a half months of activity, in accordance with its initial plan. Despite the headwinds, its revised business plan called for operating breakeven by June next year, three months ahead of the initial business plan.

Given the challenges, some experts consider the offer of 1.2 to 1.5 billion euros to be optimistic.

Even at the best of times, the coming years will be difficult, Arrigo said, adding that the ITA’s financial performance until a potential deal is closed will play a key role in how much it can bring in. .

“While the government may be able to push through privatization, I am very skeptical of the company’s ability to make a profit, even as part of a large group,” he said.

“The best the government can do is stop pumping money into it.”

The company’s top brass have made it clear that they want to reach a deal by June. Their sense of urgency is warranted, experts say.

“Politicians just can’t stay away from the business,” said John Strickland, director of transportation consultancy JLS Consulting. “This has been a historical problem with Alitalia.”

“If there is political will for an agreement at this time to no longer invest state money, management would naturally be keen to pursue this quickly.”

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