The Duck's Back
The back of a duck
A while back, about a year and a half ago actually, in August of 2006, we wrote one of our snippy notes about the fix being in for Air France to take over the shuddering remains of Italy’s national airline, Alitalia. That was (here) if you care deeply about knowing what we said then. At any rate, the thing was titled “That Duck Don’t Fly” and since we have a nice snap (above) of a duck’s butt, we’ve decided to go with the theme.
The deal has now been done and it appears to suck. When the Milan stock market reopened on the morning after the announcement, Alitalia shares tried to open at 43 per cent below the prior day’s closing price and trading was suspended to forestall an even worse outcome. It was further revealed that the whole thing is contingent on the Italian Government “lending” 300 million more euro – that is not quite $500 million at today’s improbable exchange rate – to the company it is giving away. The European Union has since said that it would want to be quite certain that this sum is not in fact some kind of hidden state subsidy and no doubt clever lawyers are at work on the terminology…
As we also foretold, some part of all this appears to have further depended on the availability of the State-controlled – though not exactly State-owned (here) – Italian power company Enel to discover that its foreign ambitions were not, as it had thought, in France but rather in Spain. It purchased control of the Spanish utility Endesa last October, putting an end to plans which had been a source of irritation to Électricité de France (EdF), the world’s largest electrical utility.
The Air France/KLM offer is for 100 per cent of the company, to be paid for wholly in paper by swapping out Alitalia shares at 160 to one for shares in the new owner. Air France gets to cut eight percent or so of the workforce. The deal has been approved by the Italian Government and by Alitalia’s Board. It is now to be weighed by the carrier’s unions, but they have said their “backs are to the wall” and this passage is expected to be more theater than substance.
A rather more important point is what the new Government – Italy is facing elections next month – will have to say about all this. A return of Mr. Silvio Berlusconi’s center-right formation is the most likely outcome and Berlusconi has had poor to very poor relations with the French; though much of this depended on his strong, and fully mutual, dislike for that country’s former President, Jacques Chirac.
Uncertainty about what the new lot might want may possibly have had something to with the not very seemly haste – on the part of a thoroughly lame-duck government – with which this stinking deal has been brought to a conclusion after many, many years of just letting the company sit there and rot. There is something on this theme in our note “With the Living Dead” (here).
Oh well, we have been officially advised – they left this to Romano Prodi, since everybody else was, ah, busy – that even if the French do take a 100 percent of Alitalia, it’s “Italian identity” has somehow been fully maintained. Since not a small part of the country wishes the company would just dye its hair and slip away in the dark with a phony passport, the issue was not very widely felt.
On the other hand, someone may eventually figure out that it would have been much cheaper – for the Italians at least – just to let the thing go bankrupt and then sell the chunks off at auction – a wing here, a flight attendent there, a slot and a baggage cart somewhere else. All marvelous souvenirs of a unique experience in Italian – but it could just as easily have been Martian, extraterrestrial at least – corporate life.