Alitalia Agrees to Buyout by Air France-KLM

March 17, 2008 10:12 AM
by Anne Szustek
Italy’s flag carrier is going for $184 million in a deal that is stirring up nationalist sentiment before the country’s April elections.

30-Second Summary

Alitalia has agreed to be bought by the world’s largest airline in terms of revenue, Air France-KLM, ending the Italian carrier’s 60 years of independence.

At $184 million, the price for the nearly bankrupt airline is less than expected, but as the International Herald Tribune notes, the sale will help the carrier avoid “going broke as its cash reserves quickly dry up while the European Union has banned any more state aid.”

The deal still needs approval from the next Italian government, which will be chosen during the country’s general election on April 13–14, and Alitalia’s unions.

Alitalia is only the latest national European airline to be threatened with a takeover. No-frills airline Ryanair was blocked by the EU in 2007 from buying out Aer Lingus, Ireland’s flag carrier.

Although national airlines have had to deal with negative publicity over security concerns and fuel costs, which have subsequently raised consumer prices, airlines like Ryanair have been able to offer flights as low as £1 (about $2) plus tax.

Technology consultancy Unisys foresaw such mergers in 2004, writing that “there will be more consolidation in the European airline industry in the fashion of Air France and KLM … Europe is not large enough to support dozens of legacy carriers.”

The Alitalia takeover has also dredged up nationalist sentiments and questions about job security as the Italian general election approaches.

Robert Cullemore
, an analyst at consultancy Aviation Economics, said, “Changing governments adds a huge amount of uncertainty, and the unions could always try to scupper the deal.”

Headline Link: ‘Alitalia Agrees Sale to Air France-KLM’

Background: Flag carriers and the advent of low-cost airlines

Opinion & Analysis: Flag carriers subject to changing winds

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