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Italy Government Presses on With Alitalia Bid

The Italian government said Wednesday that it was pressing on with its troubled plans to privatize Alitalia, with one potential bidder still in the running, but warned it may change its plans as it continues to seek a way to secure a future for the ailing airline.

The Economics Ministry's comments came a day after Air One, Italy's second-largest airline and widely seen as a front-runner in the race, pulled out of the bidding.

News of the pullout sent Alitalia shares plunging 8% at 0.74 euros ($1.02) at the opening of trading in Milan on Wednesday. Alitalia faced more trouble with a daylong strike by its flight attendants expected to cause delays and cancellations of dozens of flights.

The ministry said in a brief statement that "as of today the procedure remains open" -- citing the sole remaining contender, U.S. asset management group Matlin Patterson Global Advisors. It added, however, that it "reserves the right to take any further decisions regarding the privatization in the light of further information that may become available later today."

Matlin Patterson rejoined the process after a consortium to which it had belonged dropped out in May. The consortium, seeking to deny Italian press reports, reiterated Wednesday that it had not re-entered the process.

The Italian government is seeking a private investor to buy at least a 39.9% stake in Alitalia but is prepared to sell its entire 49.9% stake. It has already delayed twice the deadline for the presentation of final bids, with the new one next Monday.

The privatization process, beset by concerns about a lack of data and shifting guidelines, has been confused by exits and entries.

On Tuesday, AP Holding, Air One's parent company, became the latest to pull out.

Air One Pulls Out of Bidding

It said in a statement that the conditions included in the sale contract drawn up by the Italian Treasury would not allow it to carry out its turnaround plan for Alitalia.

Air One had so far been the most steadfast bidder and the one said to have the greatest chances of succeeding. Its pullout left the auction process in disarray, leaving Premier Romano Prodi's government with the difficult job of keeping the airline flying as it loses about 2 million euros ($2.75 million) a day.

Previously, TPG and Russian carrier Aeroflot Russian Airlines had withdrawn.

TPG pulled out on the grounds that the sale process rules were too complex and didn't give it sufficient flexibility, while Aeroflot said it hadn't "had access to critical information" to enable it to put forward a business proposal.

In recent weeks, the Italian Treasury had sought to encourage TPG to come back into the auction, but the private equity company didn't change its original position that the conditions imposed in the sale were too restrictive.

Alitalia's efforts to turn itself around have been hurt by repeated strikes, high fuel costs and competition from low-cost carriers. In June, the airline reported a first-quarter net loss of 135 million euros ($180 million), compared with a loss of 159 million euros in the same period last year.

The latest strike Wednesday by flight attendants -- accompanied by a wider protest of air travel workers -- was expected to snarl air travel.

The company did not say how many flights were expected to be cancelled. But it said in a statement last week that it would try to warn passengers of the flights that will be affected by the 24-hour walkout and called on the public to check the company's Web site.

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