Analysis-Italy's Nationalists Set To Loosen Grip On Beloved Airline With Mooted Lufthansa Deal

Italy's new right-wing government has shown it is prepared to put sound finances ahead of national pride by revamping plans to sell a stake in the successor of the country's repeatedly bailed-out flagship airline to Germany's Lufthansa.

ITA Airways took to the air in 2021 and has had to struggle with the legacy of its loss-making predecessor Alitalia, that sucked in an estimated 10 billion euros ($10.63 billion) of state funds in its last 14 years of life.

Looking to forge ahead with a sale, the government passed a decree to sell an initial minority stake in ITA with the aim of speeding up the full divestment, a cabinet statement said.

Lufthansa declined to comment on Rome's decision to offer an initial minority stake. ITA's Chief Executive Fabio Lazzerini confirmed that talks were ongoing with Lufthansa.

Newly installed Prime Minister Giorgia Meloni has pledged to protect the national interest in strategic sectors, aiming to regain control of Telecom Italia's landline grid and preparing a trusteeship for a refinery in Sicily owned by Russia's Lukoil.

Some of Italy's politicians consider ITA as the heir to cultural icon Alitalia, which they want to preserve. Industry Minister Adolfo Urso, a senior figure in Meloni's Brothers of Italy party, called the old Alitalia "the first showcase" of the country in the world.

But economic reality has hit hard and, after years of failed bailout strategies, Meloni has little choice but to press ahead with sale plans.

Andrea Giuricin, a transport analyst and a professor at Milan's Bicocca University, said political interference had long stifled efforts to find a solution for the Italian flag carrier but Meloni can finalise a privatisation launched earlier this year by the government of Mario Draghi.

"Despite its nationalist tone, this government seems now to understand managing airlines is not the job of the politicians," he told Reuters.

NO OTHER CHOICE

During her victorious electoral campaign this summer, the right-wing Meloni asked the outgoing administration to leave any decision on ITA's future to the future government.

Negotiations with U.S. private equity fund Certares, Air France-KLM and Delta, which began under Draghi, produced no results. It was just the latest in a long line of attempts in the past decade to forge alliances with numerous partners.

ITA reported an operating loss of 170 million euros in 2021, but CEO Lazzerini recently said business was improving, with revenues exceeding costs for the first time in the last 20 years for an Italian flag carrier.

But analysts still see a merger with a stronger rival as the only option left for ITA. Some also say that ITA does not have to worry so much about losing its national identity should Lufthansa take over.

"Each airline in the Lufthansa group has its own brand identity and is managed with a degree of operational independence - though of course not everything can be separated as you try to run a network of flights with significant connecting travel," said Alex Irving, an analyst for Bernstein.

For example, national carriers like Swiss International Airlines and Austrian Airlines, which have been taken over by Lufthansa, have kept their home bases and identity relatively intact.

Rome has already pledged more than 1 billion euros for ITA and under a deal with the EU it could provide it with an additional 250 million next year.

The Certares-led alliance was willing to pay 350 million euros for a 50% stake plus one share of the state-controlled airline, sources had said.

Analyst Giuricin said the company cannot survive national and international competition as a standalone company.

"In the short term, Lufthansa would probably lose money but revenues could come afterwards, thanks to the development of the Rome airport hub. It is a tough challenge," Giuricin said.

($1 = 0.9412 euros)