Italy may still find a buyer for Alitalia after its auction to sell the company failed, but the government still faces the possibility of having to liquidate the country's flagship airline, analysts and officials said Thursday.
The collapse of the auction process capped years of turmoil at a company that was once the pride of Italy. Beset by frequent strikes, management shuffles and an aging fleet and hurt by aggressive competition from low-cost carriers, Alitalia loses about 2 million euros ($2.75 million) a day.
"Making Alitalia attractive to an investor seems to be more difficult than we thought," Economics Minister Tommaso Padoa-Schioppa admitted.
Padoa-Schioppa floated the idea of liquidation for the first time in an interview with Corriere della Sera on Thursday. But he insisted that even though the auction failed, a sale is still possible.
"We are exploring alternatives," he said. "The sale option has not been exhausted."
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.
"Aside from the sale, there is only liquidation," the minister added. "It's a loss-making company, in which the government can't inject any more cash."
Analyst Carmelo Pappalardo of RasBank in Milan said that "right now the outlook is rather critical."
"The possibility of a liquidation of assets might draw the interest of various operators," said Pappalardo. He singled out "private equity funds that might see the possibility of speculation with regards to certain slots or routes, or industrial operators."
Government Scraps Auction Plans
On Wednesday the center-left government formally scrapped plans for the auction after all the bidders dropped out.
The auction started late last year and originally drew expressions of interest from 11 bidders. But the process was marked by concerns about a lack of data and shifting guidelines.
The government had to postpone the deadline twice, until it was forced to call off the process altogether with a few days remaining before the final deadline Monday.
Premier Romano Prodi admitted Wednesday that the auction had not ended as he had hoped for, but said that alternatives were on the table.
One option, already floated by the transport minister, was to engage in direct negotiations with candidates who have expressed an interest in Alitalia.
The candidates might include bidders who previously pulled out, such as front-runner Air One, the country's second-largest airline, and Russian carrier Aeroflot Russian Airlines; or airlines that did not take part in the auction but might be looking to consolidate their positions, such as Air France-KLM or Lufthansa.
Air France-KLM was always considered an obvious candidate because it already enjoys a partnership with Alitalia through the SkyTeam global alliance of air carriers and has a code-sharing agreement for certain routes.
But the airline did not take part in the auction. Chairman and Chief Executive Jean-Cyril Spinetta said July 12 that "we don't envisage neither directly or indirectly" going after Alitalia, according to a spokesman who said nothing has changed since then.
A Lufthansa spokeswoman, Stefanie Stotz, said Thursday that "our assessment, that the Italian market is interesting, remains unchanged."
Alitalia is a tough sell.
In June, the company 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. Its debt totaled more than 1 billion euros ($1.3 billion) as of December, and speculation that the company might scrap its frequent flyer program has been rife in recent weeks.
In a stark reminder of Alitalia's troubles, on Wednesday just as the auction process was collapsing after the pullout of the company's last hope, Air One a strike grounded some 150 flights.