Alitalia seeks bankruptcy measure

Negotiations with unions will be critical to saving the airline

Troubled Italian airline Alitalia has applied for bankruptcy protection as it tries to agree a deal to ensure its long-term survival.

The carrier has sought court protection from its creditors, effectively declaring itself insolvent.

An administrator will be appointed to handle the process, with flights continuing while the firm plans a radical overhaul of its operations.

Losing 2m euros (£1.6m) a day, Alitalia has survived on a 300m-euro state loan.

Plans are being drawn up to split the carrier into two and to sell a stake in a new entity to a foreign airline.

Split in two

Guaranteeing the airline’s future will depend on securing fresh investment and persuading its unions to accept large job cuts.

Both Air France KLM and Lufthansa have expressed interest in investing in any new entity which emerges from the current business.

No one can buy Alitalia in the state it’s in… the business is toast Roberto Colaninno

Earlier on Friday, Corrado Passera, head of the airline’s financial advisers Intesa Sanpaolo, confirmed that Alitalia’s board was drawing up a request to seek bankruptcy protection.

The move will give the firm breathing space to reach agreement on how the business can proceed.

The government adopted new measures on Thursday aimed at speeding up bankruptcy proceedings, widely interpreted as a signal that Alitalia was set for such a course of action.

Future plans for the carrier would see it divided in half, with its loss-making operations remaining under bankruptcy protection and potentially being liquidated.

Profitable short-haul routes would be separated into a new business, controlled by a consortium of Italian investors including budget airline Air One which would effectively be merged with Alitalia.

Italian media have speculated that the new firm will employ 7,000 fewer staff than Alitalia’s current 19,000 strong workforce and operate flights to about 50 fewer destinations.

Italian ownership

Prime Minister Silvio Berlusconi has made Alitalia’s continued ownership by Italian interests a precondition of any rescue deal.

However, experts have said the airline – of which the government owns 49% – can only survive in the future as part of some European alliance.

Silvio Berlusconi wants to keep the airline in Italian hands

Previous attempts to sell the business to a foreign airline have foundered over union concerns about job losses and unease over the severity of the airline’s financial problems.

The airline’s perilous position was put into perspective by Roberto Colaninno, appointed to take charge of the new entity that emerges from the restructuring.

“No one can buy Alitalia in the state it’s in,” he told La Repubblica newspaper.

“With all respect, I am not Merlin the magician. The business is toast. It doesn’t exist any more. There’s nothing left.”

Alitalia has been crippled in recent years by strategic indecision, poor industrial relations and soaring fuel costs.

Its shares were suspended earlier this summer while the firm has delayed the release of its 2007 accounts.

Many dead in Madrid plane crash

At least 45 people have been killed after a passenger plane swerved off the runway at Madrid’s Barajas airport, Spanish officials say.

Many others were hurt when the Spanair plane bound for Gran Canaria left the runway with 166 passengers and six crew members on board.

There were reports of a fire in the left engine during take-off. TV footage showed smoke billowing from the craft.

Helicopters and fire trucks were called out to dump water on to the plane.

Dozens of ambulances went to the scene, and TV footage later showed several people being carried away on stretchers.

BBC journalist Stephanie McGovern, who is at the airport, said several planes had been seen taking off since the crash, which happened at about 1430 local time (1230 GMT).

But she added that the airport was now closed and only emergency crews and staff were being allowed into the building.

“Helicopters are continually heading to the scene, dropping lots of water… The smoke has really died down now, things seem to be more under control,” she said.

“I’ve seen around 50 ambulances. They’re still coming and going, so there may still be more casualties.”

Spanish journalist Manuel Moleno, who was near the area when the accident happened, told the BBC the plane had “crashed into pieces”.

“We heard a big crash. So we stopped and we saw a lot of smoke,” he said.

There are conflicting accounts about the number of deaths, with some reports suggesting most of the passengers on the plane may be dead.

Mr Moleno said he had seen as many as 20 people walking away from the wreckage.

The plane, which was destined for Las Palmas in the Canary Islands, came down during or shortly after take-off from Terminal Four at Barajas.

TV footage showed that the plane had come to rest in fields near the airport.

Spanair issued a statement saying that flight number JK 5022 had been involved in an accident at 1445 local time. The airline’s parent company, Scandinavian firm SAS, later said the accident happened at 1423.

According to Spain’s airport authority, Aena, the plane had been due to take off at 1300 local time.

No details of the nationalities of the passengers on board has yet been released.

But the plane was a codeshare flight with German airline Lufthansa, which said it was investigating whether German passengers were on the flight.

The aircraft was a MD82, a plane commonly used on short trips around Europe, aviation expert Chris Yates told the BBC.

He said Spanair, a subsidiary of Scandinavian carrier SAS, had a very good safety record. Reports say it was the first crash at Barajas airport, some 13km (8 miles) from central Madrid, since 1983.

People concerned for relatives or friends who may have been on board the plane should call Spanair’s helpline on: +34 800 400 200.

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BA seals alliance with American

British Airways says it has sealed an alliance with American Airlines that will allow the two carriers to agree fares, routes and schedules together.

The move will also include Spain’s Iberia, which is merging with BA.

With aviation fuel prices near record levels and spending on air travel slowing, airlines are looking at ways to cut costs.

But the carriers will have to persuade the US that the deal does not break US rules on foreign ownership of airlines.

Challenges

Under the business agreement, the three airlines will co-operate on flights between the US, Mexico and Canada and the EU, Switzerland and Norway.

“We believe our proposed co-operation is an important step towards ensuring that we can compete effectively with rival alliances and manage through the challenges of record fuel prices and growing economic concerns,” said Gerard Arpey, chairman and chief executive of AMR Corp, the parent company of American Airlines.

However, BA’s rival Virgin Atlantic, owned by Sir Richard Branson, said the plan would reduce competition in the airline industry.

“What they’re proposing is to create the world’s biggest airline with American Airlines,” said Virgin’s Paul Charles.

“But we know what dominant players do – they snuff out competition, they raise prices and they become even more dominant.”

Competition

Peter Morris, an aviation analyst from Ascend, told that it was unlikely that the deal would be anti-competitive.

“I think BA would argue that it will reduce its cost structure, which it can then pass on, to a degree, to passengers.

“BA is far less dominant than any of Air France, KLM or Lufthansa are out of their hubs.”

The airlines hope the alliance will help them to cut costs

Mark Pritchard MP, a member of the House of Commons Transport Select Committee, also saw the decision as “good news” for both UK and US consumers.

“With tougher trading conditions for most airlines – coupled with the need to support the spirit of the Open Skies Agreement, Congress has no real excuse to delay the deal unnecessarily,” he said.

The airlines said they planned to apply to the US Department of Transportation for immunity from US anti-competition rules and they would also notify European regulators.

They have previously failed to win an exemption from these laws because of their dominance at Heathrow, where BA and AA control nearly half of all the landing and take-off slots to the US from the airport.

‘Good news’

However, BA chief executive Willie Walsh said the relationship would strengthen competition by providing consumers with easier journeys to more destinations.

“This may not be good news for Richard Branson but it is good news for consumers,” Mr Walsh told.

Earlier this week, Sir Richard said he had written to presidential hopefuls Barack Obama and John McCain to warn that the proposed alliance between BA and American Airlines would severely damage competition on transatlantic routes.