News Analysis: Etihad looks to shake off trends with Alitalia linkup

ROME (Xinhua) - Abu Dhabi-based Etihad Airlines is nearing a partnership deal with Alitalia, Italy's flagship air carrier that Etihad officials predict will return to profitability by 2017. But the deal depends on Alitalia's ability to re-organize its massive debt, strike a deal with labor unions, and shake off the weight of history.

Alitalia has been down this road before.

Between 2003 and 2006, the airline was in partnership talks with Air France and Dutch carrier KLM, but those talks fell apart when trade union talks broke down and when Alitalia refused to de-emphasize its under-utilized Malpensa airport hub outside of Milan, which is closer to Air France's Paris hub than to Alitalia's other hub in Rome.

Then in 2007 and 2008, the airline was merged with rival Air One and taken over by a consortium called Compagnia Aerea Italiana (Italian Airline Company), now made up of leading Italian banks and insurance companies, the Italian postal service, with minority stakes held by a handful of Italian businessmen and Air France-KLM.

The company was re-launched with great fanfare in 2010, and in 2011 and 2012 it started plans to integrate its operations with smaller Italian rivals Meridiana, Blue Panorama, and Wind Jet.

Though it all, the red ink kept flowing: the company lost more than $1.37 million per week in 2013, and there is little hope things will improve this year.

The company has an array of problems: its flights are only around 70 percent full on average, lower than major European airlines. Its on-time average for flights is among the worst among big European carriers, hurting its image among travelers. Italian law also requires it to service some regional airports that do not generate profit.

But its biggest problem is likely a bloated workforce. Despite rounds of layoffs in 2003, 2008, 2010, and last year reports are that Alitalia still has more employees that Air France, Germany's Lufthansa, or KLM -- all of which operate more aircraft and fly more miles than Alitalia. Negotiating with labor unions is the point that derailed most previous reorganization and partnership initiatives.

Another big problem is debt: years of economic losses have left the company laden in debt, and it required an additional $690 million rescue package from the cash-strapped Italian government last year to stave off bankruptcy.

None of that seems to bother Etihad, which is looking to gain a greater foothold in Europe after taking minority stakes in Germany's Air Berlin, Ireland's Aer Lingus, and regional Swiss carrier Darwin Airline. The company had $6.1 billion in revenue last year, nearly twice as much as Alitalia even though it operates fewer aircraft (92 compared to 104).

"Money isn't the issue with Etihad, but it remains to be seen whether the company will be able to strike a deal to with the labor unions and reorganize the company to make it more efficient," Gregory Hamm, a London-based airline analyst with HSBC, told Xinhua.

Talks are underway with the Italian government and banks that are Alitalia's biggest creditors and more talks are planned for the coming days.

Reports are that terms for restricting the debt and staff reductions are an obstacle. But Etihad appears confident: the company predicts Alitalia will earn a $151 million profit in 2017, exactly a dozen years after Alitalia's last full-year profit.