Preparing for take-off
Shares in Air France-KLM plunged yesterday after the Franco-Dutch airline said that it had begun exploratory talks over a possible merger with its ailing Italian counterpart, Alitalia.
Although Jean-Cyril Spinetta, the chief executive of Air France-KLM, said that he would countenance a tie-up only if Alitalia was restructured, investors took fright at the prospect of a deal. The group’s shares fell 6.5 per cent.
The loss-making, strike-torn, state-owned Italian group was seen as a potential burden for Mr Spinetta’s flourishing company.
Edmund Shing, an analyst at Kepler Equities in Paris, said: “It doesn’t make sense and is not good.” He added that Italy’s national carrier was “still not profitable and hasn’t sorted out its problems”.
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Investors’ concerns were fuelled by the possibility of political interference after Romano Prodi, Italy’s Prime Minister, said that he would discuss the tie-up at a summit with President Chirac in Lucca, Italy.
In an interview yesterday Mr Prodi appeared to suggest that Air France-KLM should be driven by diplomatic rather than business objectives.
“I have a lot of doubts,” he said. “I want to know Air France’s real intentions. Does it want to create a big European transport group in which Italy would have its place or simply grab hold of the Italian air market, which is big and rich?” Mr Spinetta said that preliminary talks were focusing on three issues: Alitalia’s restructuring, synergies and the compatibility of the two carriers’ strategies. “Only if we have positive answers to these three points will we open merger talks,” he said.
Air France-KLM implicitly highlighted a stark difference in expectations when it said in a statement that the discussions had got under way at Alitalia’s request.
The Italian group, which Mr Prodi has given until January to come up with a new rescue package, sees the Franco-Dutch airline as a white knight. But Air France-KLM says that Alitalia must solve its own problems before a partnership can be envisaged.
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Mr Spinetta is believed to have demanded that Alitalia shed 200 pilots, up to 400 flight attendants, three long-haul aircraft and 20 short-haul aircraft. He also wants Alitalia privatised. However, he is understood to be interested in a tie-up as a way of entering the lucrative Italian market, bringing passengers from Rome and Milan through Air France-KLM hubs in Paris and Amsterdam.
Alitalia and Air France-KLM are members of the Skyteam alliance, with 2 per cent cross- holdings since 2001, when the merger idea was first mooted.
The talks were made public as Air France-KLM announced a 26 per cent rise in second- quarter profit to €374 million (£253 million). With sales of €21.4 billion last year, when it carried a total of almost 70 million passengers, the Franco-Dutch group, created in 2004, claims to be the world’s most successful airline.
Alitalia is anything but that. It lost €167 million in 2005 and it expects to do even worse this year. Alitalia shares rose 2.9 per cent as it confirmed talks with Air France-KLM but said that a tie-up with other airlines remained possible.
Air China and Air India are among the potential partners courted by the Italian authorities.