The brand that will not die – POLITICO

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Italia Trasporto Aereo SpA has a problem.

ITA will start flying on October 15 as Italy’s new national carrier, replacing bankrupt Alitalia, but hardly anyone has heard of it. This is not the case for Alitalia – a legendary brand, albeit tarnished by years of labor problems, inefficiency and serial bankruptcies. This is why ITA boss Fabio Lazzerini (a former Alitalia) is considering buying the brand as part of a call for tenders announced by the Italian government on Friday.

But if ITA is rebranded as Alitalia, it raises the question of how different the new airline is from the old one.

It’s not just the name. The ITA will fly the former airline’s plane, using many of its slots in Milan and Rome, and will be staffed with reduced manpower from the former airline.

This is not how the ITA is spun by Brussels and Rome. The European Commission determined last week that ITA and Alitalia are separate entities – what’s called economic discontinuity. As a result, the new company is not responsible for the 900 million euros in illegal state aid received by its predecessor, which also allows Rome to inject 1.35 billion euros in new money into the new company.

Brussels has managed to find a ‘digestible compromise’ between Rome’s demands and a strict application of the bloc’s state aid rules, said Tommaso Valletti, former chief economist of DG Comp at the launch of the ‘Alitalia survey in 2018. He also acknowledged that “the decision leaves a bitter taste in the mouth” because “the money will never be paid and the distortion of past competition will never be rectified”.

Valletti noted that, as with many competition decisions, timing has a political dimension. A victory over Alitalia is important for Italian Prime Minister Mario Draghi, a respected former central banker who is seen as crucial for the stabilization of Italy.

“In the art of compromise, the Draghi factor certainly helps,” Valletti said.

The rescue of Alitalia was decided by the previous government led by Giuseppe Conte of the 5 stars, whose initial plan did not meet the expectations of DG COMP. After Draghi took office, a series of meetings between his ministers and Competition Commissioner Margrethe Vestager resulted in a “common understanding” on what was needed to ensure that ITA and Alitalia were separate companies. .

“The rules on economic continuity, especially as they are interpreted during the crisis, are too vague and the outcome of cases unpredictable,” said Massimo Merola, professor of state aid law at the College of Europe in Bruges and partner of the law firm BonelliErede.

This is not the first time that the Commission has approved a transformation for Alitalia.

In 2008, the Commission concluded that there was no continuity between bankrupt Alitalia and its successor, Compagnia Aerea Italiana (CAI), a consortium of private investors convinced by Prime Minister Silvio Berlusconi to save the carrier by difficulty. Brussels also noted that there was an “economic discontinuity” between CAI and Alitalia, which allowed the new entity to avoid repaying 300 million euros of illegal aid received by Alitalia.

The Commission was convinced that CAI, operating under the Alitalia brand, would be a different, leaner and more profitable entity. It didn’t work that way. Hammered by competition from low-cost carriers, struggling with unprofitable routes and expensive, inefficient labor, the carrier has spent billions on bailouts and loans.

What’s in a name?

While the ITA desperately wanted to prove to the commissioners in Brussels that this is a separate entity from its predecessor, it is another story when it comes to the client. Just weeks before its maiden flight, search engine results for “ITA” show everything from the Italian Trade Agency to the International Theater in Amsterdam.

“Alitalia is very well known,” said Andrea Giuricin, professor of transport economics at Bicocca University in Milan. “When you try to search for ITA, of course, no one knows what it is. It is not easy to sell tickets.

This makes the Alitalia brand crucial for the new company. ITA chief Lazzerini said he would “do anything” to win the auction, which starts at 290 million euros.

Only Ryanair has publicly expressed an interest, which it has since withdrawn. Industry figures indicate that there has been little appetite among competitors for the struggling brand – although reports indicate that Italian ministerial officials expect some interest.

Alitalia even tried to anticipate the risk of its brand being sold to disrespectful bidders. The call for tenders specifies that tenderers must not use the mark “for activities or forms of communication liable to damage the image of any Member State of the European Union, in the economic, cultural, tourism and transport “.

Only companies “with a net worth … of at least 200 million euros and holding air transport operating licenses or air operator certifications” are allowed to tender.

According to competition law professor Pablo Ibañez Colomo, professor of competition law at the London School of Economics, what is potentially more problematic than open tendering is the way in which negotiations at huis clos will allow ITA to take over a large part of Alitalia’s slots; some 85 percent of the routes owned by Alitalia at Milan Linate airport and 43 percent of those at Rome Fiumicino. ITA will also start with 52 Alitalia aircraft.

The amount the ITA paid its predecessor for the assets was not made public, but the new company said in July it had raised € 700 million to cover those costs.

But transactions made without a tender could open the Commission’s decision to contestation, said Ibañez Colomo.

“This is always one of the things that I found the most difficult or the least convincing in these kinds of circumstances. Because, you could say, you basically get the good sides of a business, or [its] valuable assets… without any liabilities, ”said Ibañez Colomo.

There are some differences between ITA and Alitalia.

The ITA does not have the right to take over the frequent flyer program from the old airline and its staff will be much smaller. Compared to Alitalia’s 11,000 employees, its successor will only hire 2,800 this year, with the intention of increasing that number to 5,750 next year.

This has angered the unions, who are also furious with the Commission for allowing the creation of a new airline not bound by the contracts of the old carrier.

“Alitalia has always been at the forefront of decent working conditions and pay levels in line with other European national carriers,” wrote Livia Spera, general secretary of the European Transport Workers’ Federation, in a letter to the Commission.

“What the ITA is proposing is a way to deal with 18th century workers,” she said on a call. Under the new contracts, which are still being worked out, employees are expected to suffer a 27% pay cut, she said.

Even though there is some slimming down, Riccardo Magi, an Italian lawmaker and head of More Europe, a centrist and pro-market party, was skeptical about whether ITA flying under the guise of Alitalia can be saved from the fate of his predecessor.

“Despite the trick of changing legal entity, Alitalia does not have the capacity to be competitive,” he said, predicting that ITA would continue to have state support in the future. .

Pietro Lombardi contributed reporting.

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