ALITALIA IN TURMOIL: INITIAL PRIVATIZATION MOVES

C O N F I D E N T I A L ROME 005653

SIPDIS


E.O. 12958: DECL: 12/18/2008
TAGS: EAIR ECON ELAB IT FAA AVIATION
SUBJECT: ALITALIA IN TURMOIL: INITIAL PRIVATIZATION MOVES
PROMPT WALKOUT, MASSIVE FLIGHT CANCELLATIONS

CLASSIFIED BY: ECONOMIC COUNSELOR KATHLEEN REDDY FOR REASONS 1.5 (B) AN
D (D)


1. (C) SUMMARY: FROM DECEMBER 17 TO EARLY DECEMBER 18,
ALITALIA WAS FORCED TO CANCEL 80 FLIGHTS OUT OF ROME'S
FIUMICINO AIRPORT AS HUNDREDS OF EMPLOYEES SUDDENLY WALKED
OFF THE JOB TO PROTEST LOOMING PRIVATIZATION MEASURES AND THE
POSSIBILITY OF LAYOFFS. ACCESS ROADS TO THE AIRPORT WERE
BLOCKED AND NO IMMEDIATE END TO THE CHAOS IS SEEN, ACCORDING
TO ITALIAN DAILY LA REPUBBLICA. SINCE THE ANNOUNCEMENT OF
ALITALIA'S PARTICIPATION IN THE KLM-AIR FRANCE MERGER AT THE
END OF SEPTEMBER, ALITALIA HAS BEGUN A SCRAMBLE TO PRIVATIZE
AND REFORM ITSELF TO ENTER INTO THE MERGER ON MORE SOLID
FOOTING. LABOR AND CONTRACT TENSIONS HAD LONG SIMMERED
BENEATH THE SURFACE BEFORE THE DECEMBER 17 ERUPTION, SO THIS
PROTEST DOES NOT COME AS A SURPRISE. ALITALIA MAY HAVE
PINNED ITS HOPES FOR SURVIVAL ON THE MERGER AND
PRIVATIZATION, BUT THIS SUDDEN CRISIS BRINGS TO THE
FOREGROUND THE FUNDAMENTAL QUESTION OF WHETHER THE COMPANY
CAN TAKE THE PAINFUL STEPS NECESSARY TO EVEN PARTICIPATE AT
ALL. POST WILL FOLLOW THIS PROCESS AS IT UNFOLDS, AND WILL
TRANSMIT A MORE COMPREHENSIVE CABLE PROFILING ALITALIA AT
THIS CROSSROADS IN JANUARY. END SUMMARY.

INTERNAL MANAGEMENT DIVISIONS
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2. (C) THE DECEMBER 17 EVENTS CAME IN REACTION TO A RECENT
RECONSTRUCTION PLAN RELEASED BY ALITALIA MANAGEMENT. THE
PLAN IS SEEN BY FORMER MANAGING DIRECTOR FRANCESCO MENGOZZI
AS ESSENTIAL TO ALLOW THE COMPANY TO PROCEED WITH RAPID
PRIVATIZATION AND, THEREFORE, ASSUME A POSITION OF MAXIMUM
STRENGTH IN THE KLM-AIR FRANCE MERGER. THE PLAN INVOLVES
CUTBACKS IN EMPLOYEE SALARIES AND BENEFITS AND INCLUDES THE
POTENTIAL FOR LAYOFFS. MENGOZZI'S APPROACH DIFFERS SLIGHTLY
FROM THAT OF NEW CHAIRMAN GIUSEPPE BONOMI, A POLITICAL
APPOINTEE TASKED WITH MOVING THE PRIVATIZATION PROCESS
FORWARD. PRESS REPORTS INDICATE THAT BONOMI - AND HIS
SUPERIORS AT THE MINISTRY OF TRANSPORT - BELIEVE THAT NO
EFFECTIVE PRIVATIZATION PLAN CAN MOVE FORWARD WITHOUT THE
SUPPORT OF ALITALIA'S POWERFUL LABOR UNIONS.

A FLIGHT ATTENDANT'S VIEW
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3. (C) CHIEF AMONG THE DECEMBER 17 LABOR COMPLAINTS WERE
MEASURES TO ELIMINATE A COST OF LIVING ADJUSTMENT FOR 2004,
AND REDUCE BENEFITS BY RELYING MORE ON SHORT-TERM SERVICE
CONTRACTS THAT USUALLY LAST FOR THREE OR FOUR MONTHS AND CAN
BE CANCELLED EXPEDITIOUSLY. FRANCESCO AVELARDI, AN ALITALIA
FLIGHT ATTENDANT, HAS BEEN WORKING UNDER RENEWABLE SHORT-TERM
SERVICE CONTRACTS FOR THREE AND A HALF YEARS. "RIGHT NOW, I
HAVE NO BENEFITS AND NO JOB SECURITY," AVELARDI TOLD ECONOFF.
AVELARDI WENT ON TO SAY THAT HE HOPES THAT AFTER FIVE YEARS
OF TOTAL SERVICE, ALITALIA WILL PUT HIM ON A PERMANENT
CONTRACT, BUT HE IS AWARE THAT THEY COULD DECIDE NOT TO RENEW
HIS CONTRACT WHEN IT EXPIRES AGAIN IN FEBRUARY. AVELARDI WAS
RECENTLY TOLD THAT A HOLIDAY MORATORIUM HAD BEEN PLACED ON
ALL WORK SCHEDULE QUERIES AND CHANGES UNTIL FURTHER NOTICE;
AND AS A RESULT, HE IS UNABLE TO SPEND EITHER CHRISTMAS OR
NEW YEAR'S WITH HIS FAMILY.

COMMENT: AT A CROSSROADS
--------------


4. (C) THE VISIBLE AND DRAMATIC ERUPTION OF INTERNAL TENSIONS
DECEMBER 17 WAS INEVITABLE. A DEGREE OF URGENCY AND
DESPERATION HAS SEEPED INTO THE CURRENT SITUATION, SINCE BOTH
MANAGEMENT AND LABOR SEE INTERNAL REFORM AS A QUESTION OF
SURVIVAL - MANAGEMENT, TO PRIVATIZE THE TROUBLED AIRLINE AND
POSITION IT FOR ENTRY INTO THE KLM-AIR FRANCE MERGER; AND
LABOR, TO PROTECT THOUSANDS OF ALITALIA EMPLOYEES. WE EXPECT
NO IMMEDIATE RESOLUTION TO THESE TENSIONS. HOWEVER, ONE
THING IS CERTAIN - THE WAY THESE TENSIONS PLAY OUT IN 2004
WILL DETERMINE THE FATE OF A POTENT NATIONAL SYMBOL AND THE
DOZENS OF SUPPORT SERVICES THAT CURRENTLY SUSTAIN IT. POST
WILL FOLLOW WITH A MORE COMPREHENSIVE REPORT ON ALITALIA IN
JANUARY. END COMMENT.
SEMBLER

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2003ROME05653 - Classification: CONFIDENTIAL