ITA Italy ownership update: Certares-led consortium likely to take over ITA Airways

Italy’s brand new flag carrier ITA Airways, is moving a step closer to its privatization as the Ministry of Economy and Finance of Italy, the company’s sole shareholder, has entered exclusive talks with US private equity fund Certares-led consortium over the sale of the carrier. The consortium comprised of Certares, Air France-KLM, and Delta Air Lines is the preferred contender to take over the state-owned flagship airline with its latest offer that leaves the Italian government with at least a 40% stake in the carrier. Will the Certares-led consortium win the ITA Italy bid? Let’s take a closer look.

Delta and Air France-KLM were selected for talks in ITA Italy consolidation.

On August 31, Italy announced that it had entered ‘exclusive negotiations’ with American investment fund Certares, Air France KLM, and Delta Air Lines to sell a majority stake in the country’s new, state-owned carrier Italia Trasporto Aereo (ITA). The government selected the group led by a US-based private equity firm in privatizing ITA over a consortium of German flag carrier Lufthansa and Swiss-Italian shipping group MSC.

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Certares has reportedly offered around $600 million for a 60% stake in ITA Airways, allowing the Italian Treasury, which controls the business, to maintain at least a 40% stake in the carrier. Furthermore, the private equity-led offer allows for more state influence and gives the right to the Italian government to exercise certain strategic choices like selecting the President of the company.

The latest offer beats the rival bid submitted by Germany’s Lufthansa and Swiss-Italian shipping conglomerate MSC, which sought to control 80% of the Italian airline. While both bids for the acquisition of ITA Airways attribute an enterprise value of around 950 million euros, the coalition between Lufthansa and MSC proposed 800 to 900 million euros for a larger 80% stake. This will be broken down to 60% for MSC, 20% for Lufthansa, and the remaining 20% in public hands.

Delta and Air France-KLM to be ITA’s commercial partners

According to the Italian Ministry, the submission of the latest offer by Certares conglomerate is more in line with the government’s objectives of sales than the competing bid from the Lufthansa Group for an 80% controlling stake in ITA. Should Certares succeed in winning the bid, Delta Air Lines and Air France-KLM will be the commercial partners of ITA Airways. Both major carriers at the initial stage won’t participate in ITA’s capital structure but will invest in a minority stake later, with different timing.

Qries

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Working as a commercial and operational partner for ITA Airways, which rose from the ashes of defunct Alitalia, will be a big win for both carriers. ITA is the successor to ailing national carrier Alitalia, a one-time symbol of Italian style and glamor and the traditional choice of popes and prima donnas. ITA is a key player in Italy, which is also the EU’s fourth largest airline market.

Lufthansa’s response to the rejection

The selection of a Certares-led consortium over Lufthansa and MSC to buy control of ITA Italy is somewhat a surprise to many as Lufthansa was previously considered the preferred bidder in the European airline consolidation. Lufthansa’s spokesperson responded to the decision of the Italian government, saying that the Lufthansa-MSC joint offer was the better solution for ITA and that the country had chosen a path that allowed for more state influence.

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Germany’s flagship airline and Europe’s second-largest carrier, Lufthansa, had been eyeing a stake control in Italy’s new national airline ITA Airways, for quite a time. With Italy being Lufthansa’s largest market in Europe outside its home market, winning the ITA bid would allow the carrier to add ITA’s significant Italian network to its extensive network and unlock remarkable codesharing opportunities in both directions. Although the latest decision is in not in favor of Lufthansa, the carrier says that the Lufthansa Group remains excellently positioned in Italy with its own Italian airline Air Dolomiti and all its airline brands. Lufthansa has an industry-leading network of around 220 destinations worldwide and retains a strong presence in Italy, operating over 130 daily departures from 21 Italian destinations to serve around 4 million passengers every year.

The upcoming Italian national election on September 25

The conglomerate of Certares, Delta, and Air France-KLM will win the ITA Italy bid only if the negotiations fully satisfy the Treasury. If the state is satisfied with the new offers, it will enter a binding agreement with a private equity-led group. The upcoming general election on September 25 can turn the sale process upside down if they don’t get the deal over the line before the historic event. To reach negotiations quickly, the present state administration has fixed a deadline of September 10 for a preliminary agreement. In light of further complications of upcoming changes in government, it is critical to sort out the sales process earlier before the next government takes over.

Background of ITA Airways

ITA Italy is a successor to Alitalia Airlines-once the flag carrier of Italy known as ‘freccia alata’ or ‘the winged arrow’ in honor of speed. Alitalia was national pride and the ultimate symbol of Italian style and history that conveyed a sense of belonging to its citizens. Plagued by financial pressures, Alitalia spent several decades teetering on the brink of bankruptcy, with the Italian government pumping billions of euros into the carrier to avoid liquidation.

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After multiple failed attempts to make the airline afloat, the Italian government took full ownership of Alitalia in March 2020 after the pandemic slammed the airline industry. Finally surrendering to the catastrophic consequences of the pandemic, the state authorities signed a decree to allow the airline to reorganize as Italia Transporto Aereo S.p.A. (ITA Airways) on October 10, 2020.

Alitalia’s slimmed-down successor ITA commenced operations on October 15, 2021, when Alitalia handed over its entire operations to the newly formed state-owned flag carrier. On October 14, 2021, ITA Italy won the Alitalia brand- one of Italy’s most recognized symbols overseas, for 90 million euros. Currently owned entirely by the Government of Italy, ITA Airways is headquartered in Rome, Lazio, and flies to an extensive network of over 40 destinations spanning domestic, European, and a few intercontinental routes.

The fleet of ITA Italy

ITA is an all-Airbus fleet comprising 64 aircraft, including Airbus A220-100, Airbus A220-300, Airbus A319-100, Airbus A320-200, Airbus A320neo, Airbus A330-200, Airbus A330-900, and Airbus A350-900 jetliners. It has ordered 79 additional Airbus aircraft with the delivery starting this year or from 2023. The carrier is poised to stretch its fleet size to 105 by 2025.

The aircraft livery of ITA Italy features a renewed design with dominant blue color all over its fuselage. The wings are painted white, while the tail’s end features the Italian flag’s colors (green, white, and red). The carrier has purchased the iconic Alitalia brand featuring a hockey stick-style livery design on the aircraft with the colors of the flag of Italy. Although not currently used, ITA Airways will likely pursue the remarkable brand for future marketing operations.

Routes flown

From its primary hub in Rome-Fiumicino International Airport, ITA Italy offers flight connections to over 41 scheduled domestic, European, and a few intercontinental destinations. It serves 21 destinations in Italy including Alghero, Brindisi, Bologna, Bari, Cagliari, Catania, Florence, Genoa, Lamezia Terme, Lampedusa, Milan, Naples, Olibia, Palermo, Pantelleria, Pescara, Reggio Calabria, Rome, Trieste, Turin, Venice, and Verona. In Europe, the carrier has spread its wings to Albania, Belgium, Bulgaria, Croatia, France, Germany, Greece, Luxembourg, Malta, Spain, and Switzerland.

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Outside Europe, ITA flies to London, Algiers, Buenos Aires, Sao Paulo, Boston, Miami, Los Angeles, and New York City. The carrier is set to bolster its presence in Asia by launching flights to Tokyo and Male on October 30, 2022, and December 17, 2022, respectively.

No plans on dancing alone

The new, downsized national airline of Italy has never planned on dancing alone for long and has been looking for a new owner to iron out its financial difficulties since its inauguration back in October 2021. The carrier’s CEO Alfredo Altavilla said that it would be wrong to remain independent, adding ITA was too small to compete against three big airline groups in Europe.

 It was a struggle for the Italian government to sell Alitalia due to its financial losses, mismanagement, and heavy political and trade union influence before its ultimate demise. Alitalia’s anointed successor garnered more interest from prospective investors such as the Lufthansa-MSC group, Delta-Air France KLM-Certares group, and Indigo Partners (it withdrew its proposal later). The initial bid for ITA Airways was open until May 23, but after receiving poor offers, Italy extended the bidding stage for the takeover of the national airline.

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The future of ITA Airways is soon to be decided as Italy has taken a step ahead by entering negotiations with the Certares-led group, backed by Delta and Air France-KLM. The upcoming decision will reflect if ITA manages to remain financially viable in the coming years.

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