Italy's perennial political football gets kicked down the runway, again

Alitalia air transport employees gather for a protest rally on March 20, 2017 at Rome's Fiumicino airport.
Alitalia air transport employees gather for a protest rally on March 20, 2017 at Rome's Fiumicino airport.

Italy's flagship airline has re-entered administration for the second time in a decade, with liabilities three times greater than its assets at the latest reckoning. But few observers of either Italy's political sphere or Europe's aviation sector will be expressing much surprise.

That's because one of the company's few consistent achievements in recent years has been its ability to lose vast amounts of money. The airline has reportedly been burning cash at a rate of roughly 1 million euros a day, and were it not for the latest government intervention its remaining cash reserves would have run out by the middle of this month.

That intervention consisted of a 600 million euro bridge loan from the Italian state, designed to give the airline's recently appointed administrators some breathing space as they seek a long-term solution to the airline's well-documented ills.

Alitalia has struggled to modernise in recent years, and while the chickens born of some poor past decisions came home to roost quite some time ago, their squawks have now grown so loud at the company's headquarters inside Rome's Fiumicino airport that they threaten to drown out the roar of jet engines.

While rival legacy airlines long ago began slashing their cost bases and modernising their fleets, Alitalia failed to invest strategically in its route network and its offering, and thus lost ground in the high-margin long-haul and business markets.

Meanwhile, low-cost operators swarmed across Europe, undercutting Alitalia on continental routes and even - more shockingly - on its old bread and butter domestic travel. For the first time last summer, Ryanair surpassed Alitalia's seat capacity out of Italian airports, carrying 15.39 million passengers to Alitalia's 14.27 million. The Irish carrier now flies out of more Italian airports too, 27 to Alitalia's 26, with Easyjet not far behind at 6.8 million passengers flying from 17 Italian destinations.

A picture taken on March 15, 2017 shows an Alitalia - Etihad plane on the runway of the airport of Brindisi.
A picture taken on March 15, 2017 shows an Alitalia - Etihad plane on the runway of the airport of Brindisi.

A major obstacle to financial health has of course been the firm's sclerotic and antiquated management system, which requires Alitalia's 12,500 employees to approve any major changes to the company's structure in a vote.

The most recently proposed 2 billion euro restructuring would have required pay cuts and job losses; and even though the relevant unions agreed with the measures, the overall workforce rejected them. That vote was "cutting off their nose to spite their face," as a Rome-based fund
manager put it to me recently, given that it ultimately tipped the company into administration.

The options facing the three administrators over the next 6 months should be relatively simple: substantially restructure the firm, liquidate the remaining assets, or sell, in whole or in part. Etihad currently holds a 49% share in the company, but major European rivals seem unlikely to invest in this mess, and creditors remain unwilling to lend Alitalia a single euro more.

The administrators are ultimately dealing with a symbol of Italy's national identity, which time and again has been bailed out by the country's political class, using ever more arcane arguments and solutions to save what is to all intents and purposes a failed airline.

Even though authorities currently insist they will never renationalise the company, those workers who shot down the recent restructuring proposal clearly felt they could rely on the historically benevolent Italian state.

Former Prime Minister Matteo Renzi's failed constitutional reforms in last year's referendum were ostensibly about modernising Italy.

And as he renews his push for national office in upcoming elections, he may well find Alitalia continues to haunt the country's corridors of power - an unwelcome political football that has been repeatedly kicked down the runway.

—Willem Marx is a London-based reporter for CNBC, covering geopolitical and company news across Europe.