Italy refutes 'protectionist' tag on Alitalia rescue plan

MILAN - Italy has denied charges of protectionism over a plan for the postal service to help fund troubled airline Alitalia but British Airways' parent company IAG condemned it as "illegal aid".

The cash-strapped private flag carrier's board gave an initial go-ahead to a plan on Friday to boost capital by 300 million euros (S$507 million) and take a bank loan of 200 million euros.

Publicly owned Poste Italiane would contribute up to 75 million euros to the capital increase, which comes under a threat that all Alitalia planes could be grounded because of jet fuel debts.

Investors unanimously approved a plan to raise 300 million euros by offering new shares to existing shareholders, according to an e-mailed statement.

The airline's investors, whose biggest is the Air France-KLM Group with a 25 per cent stake, have a month from today to decide whether to buy the new stock, Alitalia said.

Directors offered to resign ahead of possible changes in the carrier's ownership, the company said. "We consider it critical that a capital increase represents a precursor to a successful restructuring," Credit Suisse Group analyst Neil Glynn said in a note to clients on Sunday.

The government said the plan does not preclude a tie-up between Alitalia and Air France-KLM and has asked the group to give its support even though its stake could be reduced to 10-11 per cent.

Board approval allowed Alitalia to keep its regular schedule over the weekend, but sparked heated criticism in Italy over the intervention of a public company in the debt-laden airline.

"This is not protectionism but the exact opposite," a government source told AFP on Monday. It is "a way of better accompanying Alitalia towards integration with a foreign partner".

But International Airlines Group (AIG), the parent of British Airways, Iberia and Vueling asked the European Commission to look into the issue.

"We have always been opposed to state aid. It's protectionist, undermines competition and favours failing airlines that have not got to grips with economic reality," IAG said in a statement.

"We would urge and expect the EU Commission to take interim measures to suspend this manifestly illegal aid," it said.

A spokesman for the European Commission, Antoine Colombani, said that the EU's executive arm was waiting for the Italian authorities to notify it on the measures envisaged. "We can't evaluate their compatibility with European rules on state aid until we have received this notification," Mr Colombani told AFP.

But the Italian government plan was heavily criticised by the influential Financial Times, which said: "Italy's new wave of protectionism risks scaring off investors."

It added that there were no obvious synergies between an airline and a postal service to justify the move.

Alitalia was already bailed out by taxpayers five years ago in a controversial government-steered operation that saw a large consortium of private Italian companies take a majority stake.

Transport Minister Maurizio Lupi said on Sunday that "the state has not and will not spend a single euro from the pockets of its citizens".

He also said the proposed plan "would allow a company like this to negotiate with Air France without being in a position of weakness". "The government will try, firstly with Air France, then with other international partners, to relaunch a strategic sector for us," he said.

An extraordinary Alitalia general meeting was under way late on Monday to endorse the board's proposals. Spanish daily La Stampa reported that Air France-KLM may attach conditions to its support for Rome's financing plan for Alitalia, including restructuring the airline's 1.2 billion euros of debt and a change of strategy and board members.