Alitalia begins bankruptcy proceedings after turnaround plan collapse

Italy's flagship airline Alitalia has formally begun bankruptcy proceedings after receiving approvals from its shareholders.

The carrier said its board had approved the request to begin an "extraordinary administration" process, after its shareholders determined the airline's "inability" to carry out a recapitalisation plan following a meeting on Tuesday (2 May).

Alitalia highlighted its "serious economic and financial situation", adding it was struggling to find alternatives and its decision to file for special administration had been taken unanimously. The airline added flights will not be disrupted by the latest development and will continue as normal.

Under Italian law, the government will have to provide funds to ensure operations are not brought to a halt and it will also oversee the appointment of supervisors to turn around the carrier or order its liquidation.

Last week, the carrier triggered insolvency proceedings after staff spurned a proposed turnaround plan, which included salary cuts and layoffs aimed at rescuing the stricken carrier.

On 25 April, the company said a €2bn (£1.7bn) recapitalisation plan contingent on the turnaround strategy was effectively buried, adding it will start appropriate "legal procedures" as funds run out.

Italy's government has repeatedly dismissed the possibility of nationalising the airline, which was last put into bankruptcy in 2008 after labour and political opposition derailed a proposed sale. However, Rome has hinted at the possibility of extending a €500m loan in a bid to keep the airline afloat for the next six months.

Once an administrator is appointed, a decision will have to be made over whether the airline can be rescued or whether it should be wound up. In the first instance, the administrator could be seeking buyers for the carrier, either through a partial or total sale or the company could be revamped as a standalone entity.

However, that would most likely entail a drastic reduction in operations and severe job cuts, among other measures aimed at making Alitalia financially viable within two years.

Alternatively, the airline could be put up for liquidation.

Alitalia, which is 49% owned by Etihad Airways, has rarely reported a profits in its 70-year history and reported a net loss of €199m in 2015, the latest year for which financial reports are available. Last week, UniCredit, Italy's largest lender, its losses on the airline amount to approximately €500m.

The airline is the latest in a long line of national carriers facing an insolvency process as it vies with the low cost and budget airlines in a fiercely competitive market where pressure on the leisure pound/euro is also increasing.

"Many airlines, particularly in the US, have used insolvency processes to drive through restructuring necessary to streamline their operations to enable them to remain competitive," said Neil Smyth, partner in the Restructuring & Corporate Recovery team at international law firm Taylor Wessing

"This can be harder to achieve in mainland Europe where employment laws provide stronger protection for employees resulting in the position that you are currently seeing in Italy where employees have rejected Alitalia's rescue plan in the hope that the government, possibly through a special administration, will bail out the airline."