The future of Alitalia, Italy's biggest airline, has been the focus of attention in recent months. The rescue of the troubled company may have a wider impact on Italian insolvencies and restructurings
In 2006, after a decade in which the company permanently recorded losses and was supported by the state, the Ministry of the Economy turned on a dime and changed its policy. Acting in its capacity as Alitalia's main shareholder, it decided to sell its equity stake (around 50% of the corporate capital) by public auction. Some of the world's largest private equity funds and a number of Alitalia's competitors - including Aeroflot, Air France and Italian airline Air One - took part in the auction, but none of the offers met the seller's requirements. Therefore, the process ended without a sale.
The Ministry of the Economy and the Ministry of Public Transport then began private negotiations to sell the former's stake to Air France. The sale was nearly concluded when the deal suddenly collapsed, mainly for two reasons. First, the trade unions refused to accept Air France's proposal on labour issues, as they considered that the potential purchaser's redundancy plans were excessive. Second, during the 2008 general election campaign, the centre-right coalition - which already appeared to be the likely winner - stated that an acquisition by a foreign competitor was not in line with Italy's economic strategy.
However, an alternative solution was found. This article considers the structure of the deal and its protagonists: the present government, the commissioner (as the administrator is termed in extraordinary administration proceedings) and Compagnia Aerea Italiana SpA (CAI), a new Italian company which was incorporated in order to acquire Alitalia's assets.
Stages of the New Deal
The main stages of the deal involving CAI were as follows:
- On April 2008 the former government approved by legislative
decree a state loan in favour of Alitalia. This loan was made to
save the company and to ensure the continuity of an essential
public service until a permanent deal was closed. However, although
the loan was probably crucial to the company's survival, in
November 2008 the European Commission deemed the loan to be in
breach of Article 88 of the EC Treaty and therefore unlawful.
- CAI was incorporated to purchase Alitalia's assets. Some of
Italy's leading entrepreneurs, the second-largest Italian
banking group and Alitalia's former main domestic competitor
acquired stakes in its corporate capital.
- On September 2008 Alitalia was declared insolvent and subject
to a special bankruptcy procedure termed 'extraordinary
administration' (amministrazione straordinaria), as
amended by Legislative Decree 134/2008 in August 2008. A
commissioner was appointed to oversee Alitalia's
- The commissioner created a 'bad' company, which took
over most of Alitalia's liabilities, leaving Alitalia's
assets in a 'good' company.
- CAI purchased the good company in a private transaction with
the commissioner and began business on January 13 2009. The bad
company remains under the commissioner's control and its
liabilities will be paid off partly through the proceeds of the
sale of the good company.
Reforming the Extraordinary Administration Procedure
The deal was made possible by a reform of the rules on extraordinary administration - that is, a bankruptcy procedure for rescuing large insolvent companies.
The previous regulations governing the procedure were unsuitable either for Alitalia's particular circumstances or for quick deal closings in general.
Therefore, the government introduced urgent amendments to the legislation governing the process - known as the Marzano Law - to allow the sale of Alitalia's assets to be concluded promptly.
The main new provisions are as follows:
- The government has the power to give the commissioner orders
when the procedure is initiated and to set guidelines for the
procedure. This provision has been strongly criticized, since it
potentially puts significant political pressure on the supposedly
- The aim of the procedure is no longer to restructure the
insolvent corporation, but simply to sell its assets. Thus, the
commissioner may now immediately negotiate and conclude the sale of
a good company to the potential purchasers. The law previously
required the commissioner first to attempt to restructure the
company by filing a restructuring plan. This process would have
added a lengthy and potentially deal-breaking stage to the CAI
- The commissioner is entitled to initiate and conduct private
negotiations with potential purchasers - a provision introduced to
allow the commissioner to negotiate directly with CAI, rather than
holding a public auction. A public procedure would have added to
the time needed to sell the good company.
- In respect of companies that carry out their business in public
services markets, deals which might be deemed concentrations under
antitrust law are no longer subject to the prior authorization of
the Antitrust Authority. The authority may impose measures only if
they are necessary to prevent unjustified and onerous contractual
conditions from affecting consumers. This provision, which
effectively negates the authority's powers, was introduced to
allow for the involvement of Alitalia's principal domestic
competitor, Air One, which is one of CAI's main
Comments and Critiques
The reform of the Marzano Law unquestionably helped to expedite the sale of Alitalia's assets and to prevent the sale from collapsing. The failure of the rescue would have led to Alitalia's bankruptcy, which the government wished to avoid at all costs.
However, although the amendments to the law might have been justifiable in this special case, they may have unintended consequences in other scenarios. The government should consider further amending the relevant legislation to avoid such undesirable effects. Of particular concern are the provisions that:
- eliminate the main function of the extraordinary administration
procedure, which is to restructure a corporation that has been
- eliminate the role of the antitrust authority in upholding fair
competition and preventing anti-competitive concentrations;
- reduce the commissioner's independence and dangerously
strengthen political influence over bankruptcy proceedings.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.