Pressure on Alitalia to keep pledges

Date: 28/01/1999

By Chris Johnstone

ITALY is facing mounting pressure both at home and from the European Commission to keep its promises and abolish the preferential treatment given to national airline Alitalia.

Commission transport officials reminded their Italian counterparts last week that they had yet to deliver on commitments to end privileges still enjoyed by Alitalia. These include taking first preference when rights to fly between Italy and non-EU destinations are allocated, and Alitalia's designation as the first-choice airline for transporting government ministers on trips overseas.

The Commission secured a promise to end all favouritism towards Alitalia as part of its price for clearing €1.4 billion worth of state aid for the struggling carrier in July 1997.

Rome's failure to comply with those demands would not only jeopardise the chances of Commission clearance for the third and final slice of the aid package, but could also force the institution to reclaim cash handed out in the first two instalments.

The Italian government has until March to deliver a report to the Commission showing that it has kept its side of the deal. Officials will then use independent consultants to vet Alitalia and the national administration's performance before taking a decision on the aid by July.

Italy's competition authority has also entered the fray with a scathing attack on the government's proposed changes to its aviation agreement with Alitalia.

It argues that it would be better to abolish the deal than to alter it and has criticised the government's planned amendments for failing to abolish favourable tariffs for services provided to Alitalia but not other airlines and to scrap the 'first preference' rule for international flights.

Italian competition officials point out that rights to fly to the Maldives and Colombo, Sri Lanka, were recently transferred to Eurofly, a charter company which is 45&percent; owned by Alitalia, after the national carrier was told to give them up.

Other airlines have remained silent during the talks between Alitalia, the Italian government and the Commission, despite their interest in the outcome of the negotiations.

Some industry insiders say Alitalia has already made informal promises to other airlines to mend its ways, adding that the carrier has already made changes following warnings last year about cutting its fares below those offered by rivals, in clear contravention of the state aid agreement with the Commission.

Alitalia also faces Commission scrutiny on another two fronts. Its partnership with KLM must be cleared by EU officials, and the Italian anti-trust authority has called on the institution to vet a franchising deal with local airline Azzurra Air covering 15, mostly intra-European, routes. Competition officials in Rome argue that the Commission is best placed to assess the deal's impact on competition.

Commission officials are likely to force some concessions from Alitalia and KLM in order to dilute their dominance on routes between the Netherlands and Italy. However, analysts predict that they will not raise major objections to the alliance.