Alitalia Starts Bankruptcy Process as Etihad Cuts Off Funds

Alitalia SpA started bankruptcy proceedings for the second time in a decade, throwing the survival of Italy’s flag carrier in doubt after the airline failed to fend off budget rivals. Shareholders voted unanimously to file for insolvency administration, the airline said in a statement on Tuesday. During a cabinet meeting convened in the evening, the Italian government approved the start of special administration and appointed Luigi Gubitosi, Enrico Laghi and Stefano Paleari as administrators. Gubitosi was appointed to Alitalia’s board in March and would have been made executive chairman if the recapitalization had gone through. Under Italian law, the government is tasked to appoint supervisors to turn around the company or order its liquidation. The government also approved a 600 million-euro ($655 million) bridge loan that will last for six months. Economic Development Minister Carlo Calenda said the debt will be granted at “market conditions,” with an interest rate of 1000 basis points added to the Euribor. Alitalia, which was mainly backed by Abu Dhabi-based Etihad Airways PJSC, last week said it had exhausted all options to stay solvent after workers nixed a 2 billion-euro refinancing plan involving 1,600 job losses. The cuts to its workforce of 12,500 employees may be even deeper under administration, as a rescue appears unlikely. Etihad, which owns 49 percent of the carrier, said it won’t extend additional funding. “It is clear this business requires fundamental and far-reaching restructuring to survive and grow,” Etihad Chief Executive Officer James Hogan said in a statement. “Without the support of all stakeholders for that restructuring, we are not prepared to continue to invest.”  Shrinking Share Alitalia, which missed out on a round of consolidation that shored up other European flag carriers, has seen its standing further eroded since a previous bankruptcy in 2008. Etihad’s stake purchase, part of a 1.76 billion-euro rescue of Alitalia in 2014, was a major chance as the Persian Gulf carrier sought to transform the struggling company into a five-star operator. The plans never panned out as budget rivals Ryanair Holdings Plc and EasyJet Plc further ate into its position in Italy, and a wave of terror attacks in Europe hurt tourism in the region. With the insolvency filing, Alitalia’s board of directors “acknowledged the serious economic and financial situation of the company,” the airline said in the statement. The administrators will take over the business and present a new strategy that may entail asset sales, reduced operations and job cuts aimed at making the airline viable within two years. If a turnaround isn’t possible, the administrators may order the carrier to be liquidated. The Italian government has already ruled out a bailout. While Etihad withdrew financial support, the Gulf carrier said it’s ready to work with Alitalia as a “commercial partner,” which effectively means that codeshare agreements continue. Etihad passengers booked on Alitalia flights can proceed with travel plans as normal, it said. Alitalia, whose stock was delisted in the wake of its previous collapse, saw its 375 million-euro bond due July 2020 fall on Tuesday to 15.9 cents on the euro, down from about 45 cents on April 21 and 94 cents at the end of last year, according to price data compiled by Bloomberg. Assicurazioni Generali SpA bought 300 million euros of the issue in 2015. Alitalia’s years of underperformance diminished its standing within the Italian economy and the aviation industry. The carrier’s share of the Italian market slumped to 18 percent as of 2015 from 23 percent in 2007, according to an analysis by Ugo Arrigo and Andrea Giuricin of Milan Bicocca University. Ryanair, Europe’s biggest discount carrier, now ranks No. 1 with a 23 percent share, up from 12 percent a decade earlier. The Italian carrier has lost almost 3 billion euros since it emerged from bankruptcy in 2009, the study shows. The company reported a net loss of 199 million euros in 2015, the last year it published figures. The special administrators will have 180 days to come up with a new plan, with a possible extension of 90 days. The process, available for large insolvent businesses, is aimed at protecting a company’s assets and workers through reorganization.