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Alitalia expected to lure investors with mass job cuts

An Alitalia jet makes a landing approach at Fiumicino airport in Rome in 2008. The cash-strapped Italian airline is expected to unveil its first mass hiring since 2008 in an effort to lure investors.


Cash-strapped Italian airline Alitalia is planning the first mass firing since it was privatized in 2008 to shrink costs and lure potential new partners while top shareholder Air France-KLM refuses to commit to a firm investment.

At a board meeting scheduled for 1700 GMT on Wednesday, chief executive Gabriele del Torchio, a turnaround specialist, is expected to unveil an aggressive industrial plan that may include thousands of lay-offs and salary cuts to make Alitalia more efficient and profitable.

Air France-KLM, which owns 25 per cent of Alitalia, and other investors will have until midnight on Thursday to weigh the strategy, an update to an initial July plan by Del Torchio, and decide whether they want to subscribe to a €300-million ($423-million) capital hike that Alitalia needs to keep afloat.

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"Alitalia's management is most likely looking at job cuts of up to 2,000, mainly targeting temporary staff," one source close to the talks said, adding however the figures were not final. The airline declined to comment.

It is unclear if the proposed cuts and the other measures will be sufficient to appease top shareholder Air France-KLM, which has so far refrained from committing to the cash call.

Credit Suisse analysts said in a report published last week after a meeting with Air France-KLM executives that the French-Dutch group was seeking a 20-per-cent cut in operational capacity at Alitalia.

Air France-KLM, in the middle of its own restructuring, has said it could be willing to invest further in Alitalia, and might even consider a takeover of the Italian carrier, but only under "very strict conditions." It has already written down the value of its stake to zero.

Should Air France-KLM walk away, the Italian government, which sees Alitalia as a strategic asset, said it would be willing to back an Asian partner, even though potential candidates Etihad Airways, Deutsche Lufthansa AG and OAO Aeroflot, have all distanced themselves for now.

"If Air France don't [subscribe], their stake will fall to around 7 per cent and then we can look for a partner in Southeast Asia," Transport Minister Maurizio Lupi told journalists on Tuesday. He mentioned Aeroflot and Air China as possible investors, but did not add details.

According to a research note by Credit Suisse published last week, "Air France is confident in the ability to achieve further cost savings at Alitalia. However, it sees difficulty in restructuring debt as Italian banks are heavily committed."

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Since cutting more than a third of its workforce when it was privatized in 2008, Alitalia has added 1,200 positions, all on a permanent basis. Today it employs 14,000 people, with 90 per cent on permanent contracts.

The company has already placed some staff on state-backed temporary layoff schemes to avoid job losses. Any job-cut proposal would need backing from unions who are so far opposed.

"We are not prepared to ... discuss further redundancies at Alitalia," several unions said in a joint statement last week.

Del Torchio's proposals could generate savings of up to €400-million, Italian media said, potentially helping to revive the carrier, which has made a profit only a few times in its 67-year history.

Despite becoming leaner since it was privatized, Alitalia has still been hit hard by competition from low-cost carriers and high-speed trains.

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Analysts say Alitalia needs a strong industrial partner willing to invest billions of euros to shift the airline's focus to the more lucrative long-distance market from regional routes.

"The cuts and this new plan will only make sense if the company then invests in a long-haul fleet and a true revamp of its strategy," said Andrea Giuricin, a transport analyst at Milan's Bicocca University.

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