I’ll explain why Ita will barely take off

The start-up of Ita was approved by the European Commission. From an economic point of view, various criticisms can be made of the plan. But the most serious problems arise from the rules governing the transition from the old to the new company. The analysis of the economist Ugo Arrigo for Lavoce.info

On July 15, the Italian government announced that the European Commission would give a substantial green light to the start-up of the activities of Ita, the new fully public-owned company set up to succeed Alitalia, thanks to the agreement reached on the characteristics of the new company.

The new carrier would therefore take off on 15 October with only 52 aircraft, of which just 7 were long-range, less than half of the total 115 aircraft that flew in the fleet of extraordinary commissioners at the end of 2019. Given its small size, Ita would give up 57 for one hundred of Alitalia's slots at Fiumicino, 15 percent of those at Linate and almost 8,000 employees on just under 11,000 currently. The new carrier would acquire only a part of the aviation branch, while the maintenance and handling business branches would be sold separately by the commissioners. Even the Alitalia brand and the related AZ initials would not automatically pass to the new carrier, but would be auctioned.

Many criticisms can be formulated from the economic point of view to this solution, however almost all of them have already been repeatedly illustrated. I will limit myself to summarizing the main ones in the form of two questions.

The first question: how is it possible that, in a market like that of air transport which in the five-year period before Covid grew in Italy by more than the Chinese GDP, there are redundancies equal to three quarters of the staff of the only national company remaining significant size? The second: how is it possible that of the approximately one thousand pre-Covid planes committed full time to cover the Italian skies, more than 85 percent belonged to foreign carriers? Now, with Ita, the share is destined to rise to 92 per cent and, without Ita – should it fail too – to approach 100 per cent. Is it possible that we are unable to fly a single national carrier of a reasonable size?

These numbers are not from business failure and not from the failure of the sector, which is actually thriving, they are bankruptcy numbers in the country. Can Italy afford to give up producing in an entire sector, that of air transport, relying almost entirely on the production of foreign carriers? It is evident that this cannot be a solution that is plausible to extend to a multiplicity of productive sectors. If we are not capable of producing, we must become so, we cannot be satisfied with the role of mere consumers.

Some may argue that the previous analysis is pessimistic, given that the new company has declared that it wants to grow over time compared to the limited size with which it would start next autumn. But there are no plausible intentions, that's not how corporate strategies work. The offer must precede and not follow the dynamics of demand, therefore the post-Covid recovery, otherwise it will be the competitors who will satisfy it. The spaces left free at Ita take-off will not remain free, but will be quickly and permanently occupied by low-cost competitors. And certainly they will not be returned to Ita when it wants to grow in size. The increase in the offer on Italian skies announced by the main low cost operators already for the summer months is the clearest demonstration of this fact.

THE REGULATORY MIX

From their overall reading, two generating principles can be deduced: the first is that all are equal before the law, but Ita is much more equal; the second, a corollary of the first, is that the current public management of Alitalia in extraordinary administration becomes, with the new rules, an exclusive tool for the implementation of the Ita plans, completely subordinate to it. But the fact that the current Alitalia is subject to public management and that Ita is also public in no way justifies the regulatory short circuit: the commissioners of Alitalia are sellers of its assets and Ita is only a potential buyer, therefore a counterpart, opposing party and with divergent interests with respect to the extraordinary administration. The fact that the European Commission authorizes Ita to buy a part of Alitalia, even by direct negotiation, obviously does not imply that the commissioners of Alitalia are obliged to sell those pieces. They may have better alternatives, relating to better bidders, willing to pay more or buy a larger business perimeter. It is true that in over four years the extraordinary administration has issued several notices of sale, none of which have been successful.

However, there may be some doubt that the research was carried out with the utmost diligence. At least one person who was seriously interested in buying the entire company, without cuts or redundancies – the American fund Cerberus – did not find a great reception and without key information to be able to formulate a binding offer had to withdraw at the beginning of 2018. . The law of corporate crises asks the commissioners to primarily protect the rights of holders of problem loans in insolvency, realizing as much as possible from the sale of corporate assets – which, continuing to function and produce within the extraordinary administration , should collectively be worth more than the sum of individual inert assets.

Distracting the commissioners from their natural mission to place them at the service of a specific aspiring buyer, in this case the new public company Ita, is therefore a legal perversion, achieved through various provisions of article 6 of decree law 99. It establishes that the 'extraordinary administration provides "also through private negotiation, to the transfer to the (new) company (…) of the business complexes identified in (its) plan". They also "put in place the additional procedures necessary for the execution of the business plan itself", it is presumed indicated by the plan itself.

With these rules, the extraordinary administration as the counterpart of a potential partial purchaser of its assets becomes the executor of its plans, having received the imprimatur of the European Commission. Therefore, a specific will of the EU, not its norm, becomes prevalent with respect to domestic law. But the Competition Directorate of the European Commission only said what Ita can buy without harming competition on the market, not what the commissioners, who do not deal with competition but with business crises, must sell, having no authority of any kind. on them.

According to the new rules, it is Ita that decides which things to take from Alitalia, since Alitalia is obliged to sell them. And who decides the price? Ita? And if he proposes a symbolic euro, what happens? And, moreover, if Ita's cherry picking makes the residual assets difficult to sell or reduces their sale value, what can Alitalia's commissioners do?

That article 6 places the extraordinary administration of Alitalia at the service of Ita is confirmed by other provisions: "The (transfer) procedures in progress (…) that are incompatible with the integrated or modified (Ita) plan are revoked taking into account the Commission's decision. " In essence, ubi maior, i.e. Ita, minor cessat, i.e. those who expressed an interest in purchasing assets before Ita was created. And furthermore "the extraordinary commissioners modify the program of the procedure for the (transfer of the assets of the) extraordinary administration in order to adapt it to the decision of the European Commission", which however, we remind you once again, only concerns what Ita can buy. and not what Alitalia sells.

Finally, two cherries complete this regulatory cake. The first: "The program (for the sale of assets) can be authorized, insofar as it is consistent with the plan (of Ita), regardless of the reliability checks of the industrial plan provided for (by the regulations in force regarding the crisis of large companies) which they may not be carried out by the extraordinary administration as they are absorbed by the positive evaluation by the European Commission of the plan itself ". In essence, the commissioners of Alitalia are exempted from the obligation to evaluate the plan of the Ita buyer, as it has already been evaluated by the EU Competition Department.

And here once again it should be remembered that the Competition Department does not evaluate the soundness, feasibility and sustainability of business plans, but only the condition that they are not able to alter competition: a condition that is certainly and more strongly respected by a hypothetical bad plan, capable of quickly bringing to failure whoever developed it.

The second icing: "pending the sale of the business complexes, the extraordinary commissioners can proceed (…) to pay the charges and costs functional to the continuation of the business activity (…) which may be preceded by any other receivable, save the credits of the state ". Basically, the costs of the continuation of the flights until the transfer of the assets that are not covered by the proceeds of these flights are easily borne by the previous private creditors of the procedure, however not too reactive so far, which have nothing to do with the continuation business activity, but they will certainly be thrilled to be called upon to make this fundamental sacrifice.

If Max Weber, a theorist of public bureaucracy as a rational management of legal power through general and abstract norms, were among us, reading these norms would probably draw some doubts about the validity of his theory. Perhaps, the legislator did not want the industrial chaos of the transition from Alitalia to Ita to remain lonely and also wanted to add a regulatory chaos to it.

Article published on lavoce.info

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/smartcity/ecco-perche-ita-decollera/ on Mon, 02 Aug 2021 05:25:23 +0000.