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Legal Loan?

DW world (jg)April 24, 2008

European Union officials have expressed doubts about the legality of the Italian government's plan for a 300-million-euro bailout of ailing Alitalia. Competitors are also unhappy about the plan.

Alitalia plans on the tarmac
Berlusconi's plan might never get off the groundImage: AP

The emergency loan program unveiled on Tuesday is intended to keep the airline flying until a new buyer is found after Air France-KLM pulled out of a takeover deal. But EU rules prohibit Rome lending Alitalia money unless it takes the same approach as a private investor in assessing the risk and setting the repayment interest rate.

A spokesman for EU Transport Commissioner Jacques Barrot said the Commission would contact Italy in the next few days and seek clarification.

"We have doubts about the nature of the measure and we want to understand if this is a commercial operation as the Italian authorities claim," he said.

Ryanair brands the plan unlawful

Ryanair Chief Executive Michael O'Leary
Ryanair is already spoiling for a fightImage: AP

Italy is also likely to meet stiff opposition from rival European airlines. Irish budget carrier Ryanair called the plan illegal and said it would make a formal complaint to the EU.

"This latest bailout makes a mockery of EU state aid rules" said Ryanair's head of legal affairs Jim Callaghan. "Propping up an inefficient national airline, which would have gone bankrupt long ago is simply illegal."

British Airways have also said they would be closely watching what happened in Italy.

In Italy, plans to sell Alitalia to Air France-KLM foundered because of political opposition and union resistance to the substantial job cuts the sale would have entailed. Incoming Italian Prime Minister Silvio Berlusconi also pledged not to sell the carrier to a foreign competitor in the election campaign.

Alitalia loses around one million euros per day, but it is far from being the only airline in the red. There is increasing the pressure for consolidation, particular in the US market, but also here in Europe.

Growing trend towards mergers

Incoming Italian Prime Minister Silvio Berlusconi
Berlusconi has said he would defend Alitalia from a foreign buyoutImage: picture-alliance/ dpa/dpaweb

This month, US airline Delta announced plans to take over Northwest Airlines to form the world's biggest carrier. There is also speculation about a potential merger between United and Continental.

Record air fuel prices -- traded in dollars -- are part of the problem. European airlines are slightly more cushioned from this increase because of the strong euro. The sub-prime crisis in the US and increased competition as a result of the Open Skies agreement, which liberalized the transatlantic flight market, are also affecting the sector.

Germany's Lufthansa is still flying high despite the industry's problems. Last year, the number of passengers flying with the carrier rose just under 18 percent to 63 million. Sales increased by 13 percent to 22.4 billion euros and company profits nearly doubled.