Alitalia. Wing and prayer

Can Italy's flag carrier survive?

ALITALIA'S obituary has still to be written. But a letter from its auditors, Deloitte & Touche, on June 10th to the airline's shareholders - the government is the biggest with a stake of 62% - has prepared them for the worst. Such is the uncertainty about Alitalia as a “going concern” that the auditors were unable to express an opinion on their client's accounts for 2003. With an operating loss of €379m ($428m) last year, Italy's flag carrier dived even deeper into crisis.

Lacklustre economies in Italy and other European countries, the impact on travel of the September 11th terrorist attacks and, lately, higher fuel prices, are beyond Alitalia's control. Nor does Alitalia bear all the blame for the off-putting inconvenience of its two Italian hubs, Rome's Fiumicino and Malpensa, near Milan. Yet the airline's managers have long neglected opportunities to boost efficiency. At the very least, they must rationalise its medium-haul fleet and do what their predecessors dodged for years - reduce its workforce. Only by cutting at least 1,500 of 21,000 jobs, adding to flightdeck workloads, outsourcing more and revamping its sales network, will Alitalia have any hope of survival.

Giancarlo Cimoli, the boss since May 6th, is drawing up a plan that the government, which moved him there from running Italy's railways, hopes will pull Alitalia out of its plunge. But Mr Cimoli's is Alitalia's third plan in nine months. And it is fast running out of cash. It had around €250m at the end of March - enough to avoid a cash crunch in the next four months, but maybe no longer.

The letter from the auditor refers to the possibility of raising a fresh bank loan of perhaps €400m. That would depend on securing government guarantees, and already has other airlines crying foul. That loan could be only a stop-gap as, ultimately, Alitalia needs more equity. But by qualifying its accounts on “going-concern” grounds, the auditors made it impossible under Italian law to tap the stockmarket.

Is this the final touchdown, then, for Alitalia? Although Italian law prevents Alitalia, in its current condition, from seeking fresh funds, it does not prevent investors from offering them on their own initiative. What rational investor would put money into the airline? The answer seems to be Fintecna, a cash-rich concern owned by, er, the Italian treasury. No wonder Alitalia's competitors are squealing, and EU officials are watching closely. Yet unless fresh cash arrives from somewhere, the meeting of Alitalia's shareholders called for June 25th to approve last year's accounts may be the last of its kind. The one after that might have liquidation on the agenda.