Alitalia starts bankruptcy as Etihad shuts taps

ROME • Alitalia SpA started bankruptcy proceedings for the second time in a decade, throwing the survival of Italy’s flag carrier in doubt after the airline failed to fend off budget rivals.

Shareholders voted unanimously to file for insolvency administration, the airline said in a statement on Tuesday.

During a cabinet meeting convened in the evening, the Italian government approved the start of special administration and appointed Luigi Gubitosi, Enrico Laghi and Stefano Paleari as administrators. Gubitosi was appointed to Alitalia’s board in March and would have been made executive chairman if the recapitalization had gone through. Under Italian law, the government is tasked to appoint supervisors to turn around the company or order its liquidation.

The government also approved a 600 million-euro ($900 million) bridge loan that will last for six months. Economic Development Minister Carlo Calenda said the debt will be granted at “market conditions,” with an interest rate of 1,000 basis points added to the Euribor.

Alitalia, which was mainly backed by Abu Dhabi-based Etihad Airways PJSC, last week said it had exhausted all options to stay solvent after workers nixed a 2-billioneuro refinancing plan involving 1,600 job losses. The cuts to its workforce of 12,500 employees may be even deeper under administration, as a rescue appears unlikely. Etihad, which owns 49 per cent of the carrier, said it won’t extend additional funding.

“It is clear this business requires fundamental and far-reaching restructuring to survive and grow,” Etihad CEO James Hogan said in a statement. “Without the support of all stakeholders for that restructuring, we are not prepared to continue to invest.”

Alitalia, which missed out on a round of consolidation that shored up other European flag carriers, has seen its standing further eroded since a previous bankruptcy in 2008. Etihad’s stake purchase, part of a 1.76-billioneuro rescue of Alitalia in 2014, was a major chance as the Persian Gulf carrier sought to transform the struggling company into a five-star operator.

The plans never panned out as budget rivals Ryanair Holdings PLC and EasyJet PLC further ate into its position in Italy, and a wave of terror attacks in Europe hurt tourism in the region. With the insolvency filing, Alitalia’s board of directors “acknowledged the serious economic and financial situation of the company,” the airline said in the statement.

The administrators will take over the business and present a new strategy that may entail asset sales, reduced operations and job cuts aimed at making the airline viable within two years. If a turnaround isn’t possible, the administrators may order the carrier to be liquidated. The Italian government has already ruled out a bailout.