MOSCOW. (RIA Novosti economic commentator Mikhail Khmelev) - A few days before the deadline, Russian air carrier Aeroflot firmly and finally withdrew from the bidding for Italian airline Alitalia.
It was a good move. It would have had to pay an outrageous price to enter the European air passenger market and become a global company.
Rumors that Aeroflot would abandon its bid first began to circulate in the middle of June. Aeroflot flatly denied them, but it appears it should not have. To buy into a problem Italian company seemed a risky business to many. The new shareholder was expected not only to repay the carrier's debts, which run into the billions of dollars - the most difficult thing was to reach a compromise with the Italian government, which is accustomed to intervening in business, and with unruly Italian trade unions, which even during crucial talks have never desisted from staging endless strikes.
Aeroflot, which joined with Italian bank Unicredit, submitted a bid to purchase a 39.9% stake in Alitalia from the Italian government. Italy's Ministry of Economy and Finance hinted that it could also give the winner the government's entire stake of 49.9%. In addition to the Russian airline, two more investment groups have shown interest: AP Holding together with Intesa Sanpaolo (a consortium representing the interests of Air One, a small Italian air carrier) and a group of companies comprised of Texas Pacific Group Europe, MatlinPatterson and Mediobanca.
Officially, the Italian government said the winner would be the company with the most competitive business plan. The chronically loss-making carrier badly needed competent management. Over the past 10 years Alitalia has not once reported a profit. 2006 was no exception - its losses amounted to 380 million euros. The first quarter of 2007 saw more losses - 147 million euros. The airline has a large inventory of costly-to-maintain, aging airliners of different types, quite a number of unprofitable flights, huge debts, and a restive staff given to staging large-scale protests on any occasion against its state employer.
On top of all that, many of the tender conditions were hazy - a ban on massive staff cuts and on reduction of domestic flights, and also an absurd requirement to keep the "Italian identity" of the company. But the main factor seemed to be the price. The government wanted to get a market price for the bankrupt company while also burdening the new owner with a plethora of conditions. The owner could, for example, be fined 100 million to 200 million euros for departing from its declared business plan.
Aeroflot, it seems, was ready to meet most of the terms. Despite the exorbitant price, it was able to secure financing for the entire cost of the deal. What is more, the Russian carrier was prepared to contribute between 1.2 billion and 2 billion euros to the company's rehabilitation. In response to the demand not to cut the number of flights, Aeroflot suggested merging the schedules of the two airlines. Also, Aeroflot's business plan, unlike the one from Air One, did not call for massive layoffs.
Air One, Alitalia's current rival on domestic flights, had suggested that the unions cut 2,350 jobs between 2008 and 2012 should the deal go through.
But the freakish tender conditions did not seem to be the main snag. As talks went on, it emerged that the government was not prepared to disclose all the details of its carrier's financial and operating activities. This added to the probability that Aeroflot was paying an unreasonable price for access to the European aviation market. Lack of information prevented the company's financial advisers from drawing up the optimum offer.
The Alitalia saga seems certain to continue, but with the Russian company out of the running. Aeroflot is expected to cast about for other assets in Europe worth buying. The company's management still has high hopes of becoming a global passenger carrier.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
