Overwhelming Debt, Labor Issues Seen As Repelling Forces

They just couldn't hang on. The last remaining bidders in the auction for Italy's state-owned carrier, Alitalia, withdrew their bids Tuesday night.

As ANN reported, the country has struggled to keep the auction alive. With less than a week to go before final offers were due, Italy was doing its best to prevent a collapse of the sale.

The only real contender was small domestic carrier Air One... and it was still actively trying to raise funds to support its bid just this week. It announced Tuesday night it was throwing in the towel and withdrawing its offer because of overly-stringent conditions, according to Deutsche Presse-Agentur.

Then, a few hours after Air One's announcement, the last remaining possibility -- a consortium led by US investors Texas Pacific Group (TPG) and Matlin-Patterson -- announced it would not be participating in the sale, either.

"You see this all the time with state-owned airlines," said Frost & Sullivan aviation consultant Diogenis Papiomytis. "Bidders are interested in the beginning because Alitalia has a strong brand name and a good network, but once you see its books and how it's run -- you can't get away from the unions and the political interventionism. All of this can deter any bidder from going forward."

Alitalia said it was prepared to continue operations for about a year, but will need an influx of cash very soon. According to the Associated Press, Italy's transportation minister is now suggesting the Italian government seek private talks with interested parties.

"It would seem peculiar to launch a new race. I see the road of negotiations with those who might show or have shown an interest as an easier way," Transport Minister Alessandro Bianchi said.

Part of the problem lies in the conditions attached to the sale of the struggling carrier. Any buyer would have to take on Alitalia's existing debt, which, as of December, was more than $1.3 billion. The carrier would also have to retain an Italian identity for at least the next eight years.

Attempts to turn Alitalia around have been hampered by, among other things, the familiar combination of competition from low-fare carriers, high fuel costs and labor unrest.

The latest strike is by flight attendants, who staged a 24-hour strike Wednesday. Unions are saying more than 100 flights were cancelled and potentially thousands of passengers stranded as a result.

So what is next for the faltering carrier?

"We are already reflecting on what do in the future," Italian Premier Romano Prodi said. "There are various options on the table."

He did not expound upon just what those options might be.

FMI: www.flyairone.it/en, www.alitalia.com, www.texaspacificgroup.com