“Aeroflot is Trade-Union Airline”
// The carrier bids for Alitalia’s debts and strikes
Two weeks after Russian President Vladimir Putin’s visit to Rome, it became known about a new project of Russian business in Italy. Russia’s largest airline, state-run Aeroflot, bids for the state-owned block of shares of Italy’s national air carrier Alitalia. Major Italian bank Unicredit is Aeroflot’s partner in the bid. Experts think that Aeroflot has modest chances for winning the bid. Yet, they believe it is quite likely the project will get political backing.
Head of Unicredit’s Markets & Investment Banking Division Sergio Ermotti said Monday that a consortium for taking part in the bid for acquiring 30.1 percent of Alitalia’s state-owned shares has been created. Aeroflot’s share in the consortium will make up 95 percent, and Unicredit’s share – 5 percent. Ermotti added that “if the Ministry of Economy and Finance allows Unicredit and Aeroflot to invite one more partner, we will consider the opportunity”. Aeroflot’s press service confirmed that the company had submitted its application for participating in the bid to the Italian Ministry of Economy and Finance. The Ministry is to approve the short-list of bidders for Alitalia. A source in Aeroflot explained this step is “preliminary” while the asset itself requires detailed analysis. “Submitting the application will provide access to documents which will serve as basis for making the final decision,” the source said. It will happen after April 16, the deadline set by Italian authorities for submitting applications.
Italian authorities announced in late December that they plan to sell “no less than 30.1 percent” of the 49.9 percent of state-owned shares in Alitalia. On February 13, the Italian Ministry of Economy and Finance selected five bidders: AP Holding, headed by Air One’s Chairman Carlo Toto, U.S. investment companies Texas Pacific Group and Matlin Patterson Global Advisers (together with Italian bank Mediobanca), Unicredit Banca Mobiliare (subdivision of Unicredit Group), and private Italian investment fund Management & Capitali. New bidders (should they appear) were to announce joining one of the selected bidders before April 2. That is what Aeroflot did, by joining Unicredit.
Meanwhile, Alitalia does not look obviously attractive. It is not only the leading Italian air carrier (nearly 24 million passengers in 2005, over 10 million of which in domestic flights), but also one of the European airlines with most difficulties. Alitalia’s before-tax losses reached ˆ261 million in 2005, and ˆ405 million in 2006. The company is suffering losses due to the increasing competition and growing aviation fuel prices. Besides, Alitalia has permanent difficulties with employees. The strikes have become regular in recent years. During the last strike in September 2006, over 100 flights were cancelled. The company’s profits in 2006 fell by 1.7 percent, down to ˆ4.724 billion. Alitalia’s capitalization is ˆ1.37 billion. Thus, the airline’s debt is over ˆ1.1 billion.
Eventually, some bidders have already given up their participation in the tender. Management & Capitali announced that last Friday. Air France-KLM had earlier refused to compete for acquiring Alitalia’s shares, saying the company is over-estimated, at $1.5 billion. Alitalia’s shares fell by 4.7 percent after that announcement. Moreover, transactions with the airline’s shares at the Milan Stock Exchange were suspended after the news that Aeroflot had joined the bid.
Yet, Alitalia’s deplorable financial state is what makes it possible for Aeroflot to buy a share in the Italian airline. Aeroflot’s traffic volume is thrice less than that of Alitalia. “Considering Alitalia’s difficulties, it is a very successful moment for Aeroflot to buy the airline at a low price,” said Agvan Mikaelyan, deputy director general of Finexpertiza. “Apparently, $1.5 billion is the highest figure in the range of Alitalia’s real-cost estimation.” Besides, Mikaelyan thinks that Aeroflot needs creating the image of a transnational carrier, and acquiring at least any share in Alitalia will help. “Ideologically, Aeroflot must be acting in the right way,” said Krasnoyarsk Airlines Director General Boris Abramovich (JV of Airbridge with participation of AirUnion alliance on the basis of the air company in January won the bid for acquiring 99.95 percent of Hungary’s Malev). “Alitalia is part of Sky Team alliance, and if Aeroflot thinks it can improve the state of the Italian airline, it will afterwards allow Aeroflot to expand the itinerary network and strengthen its presence at Europe’s market.”
Among obvious risks, experts name not so much Alitalia’s debts and losses, as the resistance of trade unions. “Strong trade unions is Alitalia’s chief difficulty,” said Oleg Panteleev, head of the analytical department at Aviaport agency. “To improve the company’s state, new CEOs will inevitably have to cut back on operating costs, and might have to reduce staff, which will cause strong resistance.” Air trade unions have already hampered privatization deals before. For instance, the first bidding for selling Malev in 2005 fell through due to the trade unions’ resistance. Alitalia’s employees have protested back in December against privatizing the company.
Experts think that Aeroflot has modest chances for winning the bid. “Acquiring a foreign airline is a complicated process. There are no ‘puppet’ tenders abroad,” said Abramovich. “Aeroflot can afford buying it, because it does not have considerable debts now,” believes Panteleev. “Everything will depend on how strongly other bidders are interested.” Mikaelyan is less optimistic, he thinks Aeroflot’s chances for winning are less than 50 percent. “Europeans are very careful when it concerns Russian companies entering their market,” said Mikaelyan, adding however that Italy is one of the few countries “that are quite ready to cooperate with Russian capital”.
Italians are very interested in Russia’s energy sector projects, which might help Aeroflot. Eni and Enel holdings have declared their interest during the business forum timed for Vladimir Putin’s visit to Italy (please see Kommersant as of March 15). Moreover, Eni’s subsidiary has already applied for participating in the bidding for YUKOS natural gas assets. An airline on the brink of bankruptcy is not a very high price for gaining access to Russian mineral resources and power-generating facilities.
Alexei Ekimovsky, Evgeny Khvostik, Sergei Ryzhkin
All the Article in Russian as of Apr. 03, 2007
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