The chief executive of Etihad Airways Group and vice-chairman of Alitalia, James Hogan, has warned that “all parties will lose” following a rejection of its latest turnaround plan by Italian union members.
Alitalia’s management had negotiated a settlement with the heads of Italy’s biggest labour unions which would have seen a refinancing package worth about €2 billion being made available to fund the struggling airline’s new, five-year business plan, but this involved implementing about €1bn worth of savings, including the laying off of around 1,600 staff. The plan also involves an expansion strategy aimed at growing revenues by about 30 per cent.
However, the tentative agreement hammered out between union leaders, stakeholders and government ministers was rejected in a ballot by union members on Monday evening.
Mr Hogan said that Etihad, which has owned 49 per cent of Alitalia since 2014, and other shareholders had “provided vast amounts of financial and commercial support during the past three years”.
He added that Etihad had “reaffirmed its strong commitment and principal willingness to support the airline” through the new proposed new funding, but that this had been dependent on the support of the unions.
“The rejection of this agreement in the staff ballot is deeply disappointing,” he said.
“As a minority shareholder in Alitalia we support the Board’s decision today to convene a shareholder’s meeting on April 27, to start preparing the procedures provided by the law.”
The next step for the airline, which employs 12,500 staff, could be the appointment of a special administrator to the company by the Italian government.
Etihad paid €560 million (Dh2.24 billion) for its stake in Alitalia in 2014, pledging to turn around an airline that had last made a profit in 1998.
Its investment was part of a wider €1.76bn recapitalisation of the airline agreed with its lenders that wiped out historic losses and provided a clean slate for the company, which is still majority (51 per cent) owned by Compagnia Aeria Italiana.
Etihad initially set a target for getting Alitalia back to profitability by this year, and its most recent accounts for 2015 showed that it managed to cut losses by €381m, or 65 per cent, to €199.1m on revenue of €3.3bn.
However, the protracted negotiations with unions over reform meant that its profitability target was recently pushed back to 2019.
In May last year, the company’s new chief executive Cramer Ball highlighted the investment that was being made right across the business, including €400m on aircraft upgrades, lounge upgrades, menu overhauls, training for thousands of staff and even new uniforms by designer Ettore Bilotta.
Chris Tarry, an aviation consultant at UK-based CTAIRA, said: “The fundamental problem is that there is always this view [in Italy] that the Italian government is going to come in and bail them out. Whilst that continues to be the case, it’s going to be very difficult to get the necessary alignment of objectives.
“Turnaround programmes are pretty easy – take out waste, generate more revenue – shrink, survive and grow. But you have to be able to implement. The challenge facing many managements of Alitalia - and many other airlines, too – have been that sometimes they are not capable of that.”
Jonathan Wober, an industry analyst with CAPA - Centre for Aviation, said that a “meaningful restructuring is not possible without union co-operation”.
“Whether Alitalia fails or not comes down to cashflow and this will depend on the shareholders’ willingness to provide yet more capital to fund losses. “That only seems likely if there is a clear and agreed path to restoring profit.”
mfahy@thenational.ae
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The specs: 2018 Honda City
Price, base: From Dh57,000
Engine: 1.5L, in-line four-cylinder
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Power: 118hp @ 6,600rpm
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Fuel economy, combined: 5.8L / 100km
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Tuesday's fixtures
Kyrgyzstan v Qatar, 5.45pm
THE LIGHT
Director: Tom Tykwer
Starring: Tala Al Deen, Nicolette Krebitz, Lars Eidinger
Rating: 3/5
Europe’s rearming plan
- Suspend strict budget rules to allow member countries to step up defence spending
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Where to buy
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Killing of Qassem Suleimani
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UAE v Gibraltar
What: International friendly
When: 7pm kick off
Where: Rugby Park, Dubai Sports City
Admission: Free
Online: The match will be broadcast live on Dubai Exiles’ Facebook page
UAE squad: Lucas Waddington (Dubai Exiles), Gio Fourie (Exiles), Craig Nutt (Abu Dhabi Harlequins), Phil Brady (Harlequins), Daniel Perry (Dubai Hurricanes), Esekaia Dranibota (Harlequins), Matt Mills (Exiles), Jaen Botes (Exiles), Kristian Stinson (Exiles), Murray Reason (Abu Dhabi Saracens), Dave Knight (Hurricanes), Ross Samson (Jebel Ali Dragons), DuRandt Gerber (Exiles), Saki Naisau (Dragons), Andrew Powell (Hurricanes), Emosi Vacanau (Harlequins), Niko Volavola (Dragons), Matt Richards (Dragons), Luke Stevenson (Harlequins), Josh Ives (Dubai Sports City Eagles), Sean Stevens (Saracens), Thinus Steyn (Exiles)
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SPAIN SQUAD
Goalkeepers Simon (Athletic Bilbao), De Gea (Manchester United), Sanchez (Brighton)
Defenders Gaya (Valencia), Alba (Barcelona), P Torres (Villarreal), Laporte (Manchester City), Garcia (Manchester City), D Llorente (Leeds), Azpilicueta (Chelsea)
Midfielders Busquets (Barcelona), Rodri (Manchester City), Pedri (Barcelona), Thiago (Liverpool), Koke (Atletico Madrid), Ruiz (Napoli), M Llorente (Atletico Madrid)
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Artist: Coldplay
Label: Parlophone/Atlantic
Number of tracks: 10
Rating: 3/5
MATCH INFO
Uefa Champions League semi-final, first leg
Bayern Munich 1
Kimmich (27')
Real Madrid 2
Marcelo (43'), Asensio (56')
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