Why Air France-KLM wants to snatch ITA Airways (formerly Alitalia) from the clutches of Lufthansa

ITA Airways reste encore loin des capacités d

Until then, Air France-KLM, caught between its need to operationally set the bar, get rid of debts and repay state aid, did not have enough time to look at the file of ITA Airways, which replaced Alitalia last year. Lufthansa seemed to be making progress in its recovery and taking control: the German group affiliated with the MSC Group formally expressed its interest at the end of January and has now submitted a bid. However, due to recent capitalist maneuvers, the French group seems to have returned to the race for a new duel with its German enemy brother in the Italian skies.

Air France-KLM and Alitalia: the story of an inevitable marriage that falls

Created as a successor to Alitalia in bankruptcy, ITA Airways still looks like a hellish hornet’s nest. So why are both groups absolutely trying to seduce a new Italian state-owned company?

If the interests of both groups in ITA Airways were known from the start of the Italian company, Lufthansa left first. At the end of January, he issued an expression of interest in buying the majority of ITA Airways’ capital in the company of the Italian-Swiss shipping company MSC (Mediterranean Shipping Company). However, the German group failed to obtain an exclusive 90-day negotiation deadline from the Italian state, which was determined to raise the stakes.

This did not deter Lufthansa from submitting a joint bid with MSC Group. If the calculation was not announced, Reuters said Lufthansa would like to raise 20% of the capital of the Italian joint stock company (compared to 40% at the end of January), while its partner would aim for 60%. The balance will remain in the hands of the Italian state for the time being, before the sale between 2024 and 2026, according to the Transalpine press.

Air France-KLM still in the race

Discouraging Air France-KLM requires more. Thanks to the capital increase, which will be completed on June 9, and the agreement with the Apollo investment fund (which is likely to take several months to complete), the group will soon be able to free itself from European capital operations restrictions. This straitjacket was imposed by Brussels on airlines that received state aid, until at least 75% of that aid had been repaid. And his first move could easily be to Italy.

AFP states that the French group has joined forces with the American investment fund Certares, which specializes in tourism and is very active in the European market. In the game is Delta Air Lines, a shareholder of Air France-KLM and also a former ally of Alitalia. Even here, the distribution of forces is not yet known, but two American groups cannot exceed 49% of the capital in European society. While Air France-KLM has yet to complete the repayment of state aid.

In any case, Air France-KLM confirms its intention, seen at the end of last summer, to build strong relations with ITA Airways. Indeed, the French group quickly started negotiations on a new partnership, which could go as a “joint venture”, a very sophisticated business partnership corresponding to the highest possible level of integration between the airlines before the merger. At this time, only codeshare have been concluded between ITA Airways, Air France and KLM. At the same time, the Skyteam alliance offered the new company a jump site, which Alitalia vacated.

The situation will calm down in the coming weeks. The Italian state must decide between the offers in the coming weeks, in addition to the surprises. The sale must then be registered by the end of June.

Long-term duel

The French and German desires to strengthen in Italy are therefore undeniable. And it has been about fifteen years since this confrontation lasts, after many weapons in the time of Alitalia. However, ITA Airways is still a substitute for an emblematic Italian company. Despite a large number of announcements, its fleet is still limited to less than sixty aircraft, including eight long-haul A330s and A350s. Much of the effort is yet to reach 78 aircraft by the end of the year and 105 by the end of 2025. For this summer, its program includes 64 destinations, including 23 national, 34 regional and 7 intercontinental. That’s 20 more than a few months ago, but the company is still far from the industry leaders.

On the other hand, joining forces with ITA Airways is undoubtedly the best way to build a strong position in the powerful Italian market. Before the crisis, it was the 5th European market with more than 150 million passengers, which, even counting only international traffic, even took 4th place. The north of the country, served by Milan Airport, where ITA Airways has managed to maintain most of Alitalia’s time slots, is a major source of highly profitable business.

The end of the double charge

The network inherited from Alitalia offers significant synergies with the Lufthansa and Air France networks, with a strong presence in Milan and its significant business attendance, as well as in Rome and its huge tourist potential. This dichotomy is an impressive benefit on paper, and yet it is one of Alitalia’s main weaknesses. For years, society has been forced, for partly political reasons, to maintain a system of dual mushrooms, dividing its forces and resources.

With limited resources, ITA Airways has been forced to refocus and is currently deploying its long-haul flights to the Italian capital only, except for the first flight between Milan and New York. This is an understandable strategy, as Alitalia has lost its ability to play at both points, but leaves plenty of room for Air France-KLM and Lufthansa in northern Italy. It is up to both groups to attract high value-added passengers to their own connecting platforms, either directly or in cooperation with ITA Airways.

ITA Airways could also provide an additional source of revenue through the integration of a joint venture such as Alitalia at the time in the transatlantic sea. It operated for 10 years alongside Air France-KLM and Delta Air Lines. If the volume that ITA Airways could potentially have is still low, the new Italian company seems determined to develop in the United States. Of its 7 intercontinental destinations, its network includes Boston, New York, Los Angeles and Miami.