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Airline Woes Reach Across The Atlantic

By Daniel Williams
Washington Post Foreign Service
Thursday, September 16, 2004; Page E01

ROME, Sept. 15 -- The airline industry shakeout that forced U.S. Airways Group Inc. into bankruptcy this week is rippling through Europe as well, with some forecasters predicting that only a handful of the continent's airlines can survive, and Italian authorities trying this week to keep national carrier Alitalia SpA aloft.

On Wednesday, Alitalia managers negotiated with unions representing ground crews and flight attendants to seal a deal that would satisfy Italian government and European Union conditions for access to a $450 million loan. The negotiations are aimed at reducing the airline's workforce by about 5,000 out of more than 20,000 employees.

_____Discussion Transcript_____
Text: Ben Baldanza, senior vice president of marketing at US Airways, discusses the Chapter 11 filing.
_____Background_____
Costs Must Be Reduced Soon, US Airways Says (The Washington Post, Sep 15, 2004)
US Airways Miscalculated Financial Needs (The Washington Post, Sep 14, 2004)
Analysts Cast Doubt On US Airways' Value (The Washington Post, Sep 14, 2004)
US Airways Faces Uncertain Future (The Washington Post, Sep 13, 2004)
US Airways Files Again For Chapter 11 Protection (The Washington Post, Sep 13, 2004)
_____World Markets_____
Global Economies
International Stocks

Wednesday's talks come a day after Alitalia pilots agreed to fly more hours for the same pay and accept 289 layoffs. In a statement, the pilots union said the agreement was "an important step for the Italian air system and permits the company to pursue a restructuring plan and above all to begin to develop."

Alitalia is trying to avoid the fate of other storied and now extinct airlines -- Pan American, Sabena and Swissair, for example -- that did not adjust to the consolidation of a deregulated air industry. Sunday in the United States, US Airways filed for Chapter 11 bankruptcy protection when concession talks with its pilots failed. Alitalia reorganization and cutbacks are meant to ease its return to profitability or, more likely in the view of analysts, to make it an attractive takeover target.

Alitalia's wobbly finances reflect Europe's changing business in the sky. Many industry analysts predict that over time, only three major national carriers -- Air France, Deutsche Lufthansa AG and British Airways PLC -- will survive with new low-cost companies such as Ireland's Ryanair Holdings PLC, whose low fares have put the squeeze on historic but fading flag airlines. Air France recently expanded by absorbing KLM Royal Dutch Airlines. Lufthansa has pursued regional carriers -- it operates Air Dolomiti in Italy -- and has its eye on Swiss International Air Lines Ltd., a reduced successor to Swissair.

Just as upstarts such as Flyi Inc.'s Independence Air and JetBlue Airways Corp. have undercut major U.S. carriers, Ryanair is putting price pressure on Alitalia by offering free tickets to some of its 15 Italian destinations and by starting six new routes out of Italy. On a promotional visit to Italy last week, Ryanair chief executive Michael O'Leary boasted that his airline is doing so well he wouldn't know where to put Alitalia passengers if the Italian company closes. "Our load factor is 90 percent already," he said while riding a hot-air balloon over Rome. "We don't have lots of spare seats." With advance booking, it is possible to travel from Rome to Venice for about $45 on Ryanair. By Alitalia, it costs more than $200.

Along with the planned staff cuts and concessions accepted by the pilots, Alitalia's proposed bailout includes breaking up the company and shuffling money-losing maintenance activities to a government firm.

At stake is the survival of an ailing national carrier that once stood for a booming and elegant Italy but lately has projected an image of sloth and inefficiency.

The pilots worked fewer hours, took more vacation and got more pay than some of their European counterparts. Ground maintenance crews were overstaffed. The 57-year-old airline turned an annual profit just four times in the past 16 years. It has enough money in the bank to pay salaries only until the end of this month.

"It remains to be seen if Alitalia can use the rescue to create opportunities for itself. It is behind other airlines in trying to make repairs," said economist Giuliano Gazzola.

The prospect of Alitalia going out of business has aroused a wave of nostalgia. Writers and commentators reminisced about its place in the country's post-World War II entry into the industrialized world. During the economic miracle of the 1950s, '60s and '70s, Alitalia was a prop in Italy's self-promotion as a land of enchantment. Photos of screen stars Sophia Loren, Gina Lollobrigida, Marcello Mastroianni and Anita Ekberg descending the steps from Alitalia planes made a flight to Italy seem glamorous. Stewardesses wore designer outfits. Flashy Alitalia posters from the 1950s and '60s are collectors' items.

The airline also projected a faithful image of Italy as a country acting for good. Pope Paul VI took the first flight by a pontiff aboard an Alitalia liner; on long trips, John Paul II travels in an Alitalia jet outfitted with a white bedroom. During times of African turmoil, Alitalia carried orphans to new homes in Italy. It ferried a gift creche from Naples to firemen in New York after Sept. 11, 2001.

Alitalia was also a ready servant of Italy's privileged political class. When legislators needed to return home from Rome after late parliamentary sessions, Alitalia could be counted on to arrange flights. The airline employs receptionists at major airports whose only job is to help VIPs navigate check-in.

But such roles and perks are falling out of fashion in a Europe of tighter budgets, slashed pension benefits and open competition. Renato Brunetta, an economic adviser to Prime Minister Silvio Berlusconi, warned in a newspaper column that Alitalia "runs the same risk" as other failed European airlines "if it remains tied to this myth of a flag carrier, which today makes no more sense."

Despite the tough talk, Alitalia's reorganization appears set to burden the government's budget. Unions are asking for severance money for laid-off workers and jobs for others in the state bureaucracy. Alitalia managers have expressed hope that a state-run defense company will take over a spun-off maintenance branch that is the company's most unprofitable sector. These demands may delay a final deal on the reorganization as the Berlusconi government figures out how to pay for it all.

"It all shows just how difficult it is for Italy to let a flag carrier go under, even if it is no longer a proud one," Gazzola said.


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