Is Air France-KLM finally on the road to success in Italy? The Italian Ministry of Economy and Finance has just announced on 31 August the opening of exclusive negotiations with the consortium formed by Certares Management, Delta Air Lines and Air France-KLM for the acquisition of part of the capital and the acquisition of the state airline ITA Airways, which took over from Alitalia a year ago.
The French group and its American allies thus have precedence over the German group Lufthansa linked to the Italian-Swiss shipowner MSC, yet favorites for some time. The Italian government judged their offer “more in line with the objectives set by the DPCM”. Adopted in February, it formalized the privatization of ITA Airways whose capital is for the moment entirely public.
In its communication, the Ministry of Economy and Finance warns however that “at the end of the exclusive negotiations, the binding agreements will be entered into only if their content is fully satisfactory for the public shareholder”. The length of this trading period or the proposed amounts were not disclosed.
The Italian state remains in the capital
According to the newspaper Il Messaggero, as AFP reports, the Certares fund, specialized in tourism, has proposed the acquisition of almost 56% of Ita for around 600 million euros. The Italian state would thus maintain a 44% stake and would have two seats out of the five that will remain on the future board of directors of the company.
The distribution between the three partners is currently unknown. The only certainty is that Air France-KLM’s room for maneuver is currently limited by the European Commission pending the repayment of 75% of the state aid received during the crisis. The group is not very far from this threshold due to its recapitalization and the investment of 500 million brought by the Apollo Global Management fund in an operating subsidiary of Air France. But in the meantime it cannot acquire more than 10% in a company in the sector.
One solution mentioned by an Air France-KLM connoisseur could be a pact with Certares and Delta Air Lines, which will allow it to further push its participation in a second phase, once European ties are lifted.
Another uncertainty is that the Italian government could change its mind after the political elections on 25 September. At the head of the voting intentions for the moment, Giorgia Meloni, president of the far-right party Fratelli Italia, had also summoned the resigning Prime Minister Mario Draghi not to rush a decision.
On the contrary, Carsten Spohr, chief executive of Lufthansa had sent a letter to Mario Draghi this summer asking him to go quickly and warn “that (his) patience is not unlimited”. After making an offer at the end of January, the German group and its ally MSC were unable to obtain an exclusive 90-day negotiation period from the Italian state, which decided to let the competition play first.
Reuters then indicated that Lufthansa wanted to acquire 20% of the capital of the Italian public company, while its partner was aiming for 60%. Afp, for its part, speaks of an offer worth around 1.4 billion euros in January, reduced to 850 million euros due to the deterioration of the air market expected after the summer.
Lufthansa and Air France-KLM have been competing for victory in Italy for about fifteen years, after many skirmishes in the days of Alitalia. However, ITA Airways is still only a substitute for the emblematic Italian airline. Despite a proliferation of announcements, its fleet is still limited with fewer than sixty aircraft, including eight long-range A330s and A350s. The bulk of the effort has yet to reach 78 aircraft by the end of the year and 105 by the end of 2025. For this summer, its program includes 64 destinations, including 23 national, 34 regional and 7 intercontinental. There are 20 more than a few months ago, but the company is still far from the leaders in the sector.
On the other hand, joining forces with ITA Airways is undoubtedly the best way to establish yourself in the powerful Italian market. Before the crisis it was the 5th European market with over 150 million passengers, even reaching 4th place counting only international traffic. The north of the country, served by the Milan airport, where ITA Airways managed to keep most of Alitalia’s time slots, is an important business traffic area, with strong profitability.
The network inherited from Alitalia offers important synergies with that of Lufthansa and Air France, with a strong presence in Milan and its important business traffic, as well as in Rome and its enormous tourist potential. A formidable asset on paper, this dichotomy was however one of Alitalia’s main weaknesses.