taxpayer pays”

Much has been said about Alitalia and TAP. What do they have in common?

Alitalia and TAP are being restructured by local politicians and Commission officials, and re-nationalized in exchange for the current liberalization of 1993, designed for private companies able to adapt to competition rules and demand requirements, creating a highly competitive market. Liberalization does not favor state-owned and politicized companies such as “old” or “new” TAP and Alitalia, even if they are restructured. In short, TAP and Alitalia share the fact that the state is a shareholder, they have more losses and the taxpayer pays.

So what is the structural difference between the two airlines?

Alitalia and TAP differ in many ways. Due to the seriousness of the economic and financial situation – among other things, the accumulated net profit in Alitalia between 2009 and 2017 is -2,603 ​​million euros in Alitalia and 16 million euros in TAP; In business strategy, where Alitalia does not operate a center that gives critical mass to its transcontinental network, while TAP occupies a transcontinental position that has allowed it to survive; In applying European regulations – the European Commission takes four years to decide on Alitalia and less than a year and a half in the case of TAP, reflecting the existence of double standards; And finally, in the inland traffic, which accounts for more than 50% of Alitalia’s passengers, which despite not being a profitable traffic, contributes to the importance of Alitalia in the country. In Portugal, TAP has nothing to do in Faro and in the extraordinary growth of traffic in Porto, while SATA is in the Autonomous Region of the Azores and complaints abound in the Autonomous Region of Madeira.

How is Alitalia restructuring going?

For now, we have a happy ending. In two press releases on September 10, the European Commission concluded that the Italian state loan to Alitalia in 2017 was illegal and must be returned. Pathetic conclusion four years later, for being a renationalized company and insolvent to get it back into the state. Moreover, it considers that Italia Trasporto Aereo SpA is not a continuation of Alitalia and that the public capital injection of 1,350 million euros respects market rules. Between the stern letter issued by the Commission on January 8, 2021 and this press release, intense negotiations had to take place between Italy and the Commission, about which we will only know about the publication of the Commission’s decision, which is already overdue. I do not hide the fear of modest commitment.

But Alitalia also went through a turbulent phase …

We will overcome the turbulent development of Alitalia at the beginning of the millennium. In August 2014, when Alitalia and the UAE federation signed an agreement, it was meant to give Alitalia financial stability and is part of the federation’s strategy to “build an alliance of airlines capable of feeding passengers for its rapidly growing long-range fleet”. On January 1, 2015, the company was transferred to a new company, Alitalia – Società Aerea Italiana SpA, with private Italian capital and 49% (387.5 million euros) from Ethiad. The agreement provides for the restructuring of Alitalia with the loss of 2,000 jobs, or 16% of the total. This is in a period when Brent crude has fallen to values ​​around $50, and the rise of 2017 coincides with the depreciation of the dollar. However, Alitalia’s net loss is -199 million euros in 2015 and -410 million euros in 2016, the year in which the operating margin was -19%, when it should have been between 5% (Lufthansa Group) and 11% (IAG). ). ). However, the following is inseparable from the political context of Italy, which is dominated by the growing political influence of two parties: the anti-regime 5-Star Movement led by Luigi Di Maio, and the far-right La Liga led by Matteo Salvini. Both are anti-European and constitute a source of instability in the Italian economy, with their impact on the Euro and the European Union. We are in Europe where the UK voted on June 23, 2016 to leave the European Union by 52% to 48%.

An insolvency scenario arises…

Bankruptcy begins at Christmas 2016, when the president of Alitalia asks the government for political support to prevent the company’s shareholders from breaking the agreement that keeps the company running. Agreement with unions reduces to 1,700 layoffs and 8% salary reduction. On April 24, 2017, “workers choose suicide and refuse to sacrifice.” On May 2, Alitalia entered bankruptcy and continued to operate thanks to a phased loan of 600 million euros from the state and did not notify the commission. In this context, a strict and transparent intervention by the Directorate General of Competition would lead to the bankruptcy of Alitalia, which would reinforce anti-European sentiment and could destabilize one of the most important economies of the European Union.

It ends up being re-nationalised…

In May 2017, Alitalia was re-nationalized, in October 2017, the state granted a new bridging loan of 300 million euros and again failed to notify the Commission. The government has postponed the sale of Alitalia until after the legislative elections in March 2018. However, the European Commission receives several complaints about Alitalia and does not ignore the history of the company. Margrethe Vestager eventually acknowledged that Alitalia has been under investigation since 2017. Among other things, the committee is concerned that the May 2017 loan will be repaid in December 2018, beyond the six-month limit imposed by current guidelines. In this context of Polichinlo’s complaints and secrets, in January 2018, Italy informed the Commission about a loan of 900 million euros, but the Commission does not respond until after the next elections.

What about after the 2018 elections?

The 5-Star Movement (32.6%) and La Liga (35.7%) won the March 4, 2018 elections. Outsiders Luigi Di Maio and Matteo Salvini became ruler and anti-European sentiments are gaining political expression in the majority. The coalition government does not achieve political stability, to the point that the two coalition parties vote against each other in Parliament, but anti-European sentiment is still alive. The government is trying to sell Alitalia, but the buyers – among others, EasyJet, Delta, China Eastern, Lufthansa Group – are giving in to several reasons with a common rule: the political impossibility of restructuring Alitalia. On 23 March 2018, the Commission announced an “in-depth investigation” into whether the €900 million loan constituted government aid and whether it complied with European regulatory guidance on the matter. More than 10 months have passed since the first loan, as complaints from interested parties followed. Given Alitalia’s registration, this would be the easiest of the commission’s investigations, but it takes nearly three and a half years to confirm its illegality on September 10, 2021. The commission decided more than four years after the first loan and two and a half years. “Deep investigation” into the case more than clear. The Alitalia lawsuit is an indelible stain on the independent reputation of the Directorate General of Competition and Commissioner Margrethe Vestager.

How does an ITA arise and how does it form?

On September 5, 2019, Giuseppe Conte is still Prime Minister, but from an executive alliance between the 5-Star Movement and the Democratic Party, more pro-European than before. Anti-European sentiment waned and waned further when Giuseppe Conte was replaced by Mario Draghi on February 13, 2021. In this political context, on October 10, 2020, the Italian government decided that Alitalia should reorganize itself as Italia Trasporto Aereo SpA (ITA). We do not have access to information about the background to this decision. Margrethe Vestager announced that the commission is analyzing the existence of continuity between Alitalia and ITA and all of this is happening with the ongoing 2018 ‘deep investigation’. There appears to be political commitment on the part of the commission, perhaps because it identifies the international trade agreement as the least worrisome way to push Alitalia into bankruptcy.

But conditions are imposed…

On January 8, 2021, the committee’s letter imposed two conditions on the ITA, with several demands on the business plan presented by the company. ITA was restructured in Alitalia, but with a break between the two companies. Among other conditions, not to mention aircraft, workers with “new contracts of employment” and “significantly reduced numbers”, purchase of the Alitalia brand in public tender, reduction of vacancies, control of growth until 2025 and so on. This reveals that the ITA must respect the principle of a market economy operator (MEOP) and, in short, it must assess whether a private investor operating under normal market conditions would make the same investment. Hence it is necessary to highlight the state capital (1350 million euros) which must be paid as if it were a private investor.

What lessons can we draw from TAP?

The first is the practical impossibility of transforming the ongoing restructuring of TAP into a new company characterized by discontinuity with TAP. We will continue to create a new public company organized by Portuguese politicians and Commission officials. Alitalia benefits from the distorted application of European regulations and does not benefit from the TAP, but it may be subject to a decision by the Committee on Medium Commitment to Reality, as happens with the ITA between the January 8 letter and the September 10 Commission statement.

What can you expect?

Staying focused on the Commission’s next decision and the consequences to be drawn, as a state-owned and politicized company added difficulties in meeting the demands of demand in Europe’s open and competitive air transport market. The problem with modest adherence to reality, mentioned above, is that it ends up mandating new government aid for the restructured TAP program, which has been left out in the ten years to 2031. Competitiveness continues to be eroded by unextracted malignancy.