BUSINESS AS USUAL AT ALITALIA: ZANICHELLI BECOMES

UNCLAS ROME 001080 SIPDIS SENSITIVE DOL FOR ILAB/BRUMFIELD; DOT FOR OFFICE OF INTERNATIONAL AVIATION; DEPT. FOR EUR/WE, EB/AVP AND DRL/IL; E.O. 12958: N/A TAGS: EAIR ELAB IT PGOV AVIATION SUBJECT: BUSINESS AS USUAL AT ALITALIA: ZANICHELLI BECOMES NEW MANAGING DIRECTOR (U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT ACCORDINGLY. NOT FOR INTERNET DISTRIBUTION. ¶1. (U) FRANCESCO MENGOZZI RESIGNED AS ALITALIA'S MANAGING DIRECTOR ON FEBRUARY 28, AND WAS REPLACED BY MARCO ZANICHELLI, FORMER DIRECTOR GENERAL AND A MEMBER OF ALITALIA'S BOARD OF DIRECTORS. ZANICHELLI WILL BE ASSISTED BY TWO GENERAL DIRECTORS: GLENN HOUENASTEIN, AN AMERICAN CITIZEN FORMERLY OF CONTINENTAL AIRLINES, AND LUCA EGIDI, ALITALIA'S FINANCIAL MANAGER. ¶2. (SBU) FRANCESCO MENGOZZI, WHO HAS BEEN MANAGING DIRECTOR SINCE EARLY 2001, HAD LOST POPULAR AND POLITICAL SUPPORT BECAUSE OF HIS UNPOPULAR PLAN FOR REFORMING ALITALIA TO MAKE IT PROFITABLE, A PRECONDITION FOR PRIVATIZING THE LARGELY STATE-OWNED AIRLINE. MENGOZZI HAD PROPOSED CUTTING ALITALIA'S BLOATED AND INEFFICIENT LABOR FORCE BY LAYING OFF 1,548 EMPLOYEES AND CONTRACTING OUT 1,200 OTHER POSITIONS. THE MANY STRIKES BY ALITALIA EMPLOYEES IN PROTEST OF THIS PLAN HAD COST THE AIRLINE HUNDREDS OF THOUSANDS OF EUROS. THE RESULTING STANDOFF LED PRIME MINISTER BERLUSCONI TO ASK FOR A NEW PLAN FOR RESTRUCTURING THE AIRLINE, IN WHICH THE ITALIAN GOVERNMENT IS A MAJOR STOCKHOLDER. ¶3. (SBU) WHILE MENGOZZI WAS COMMITTED TO THE SWIFT PRIVATIZATION OF ALITALIA, PROBABLY VIA A MERGER WITH AIR FRANCE AND KLM, ZANICHELLI HAS STATED THAT ALITALIA NEEDS A CAPITAL INFUSION AND MUST BE MADE PROFITABLE BEFORE ANY (EVEN PARTIAL) PRIVATIZATION. ZANICHELLI PREFERS TO SEE THE PROCESS DRIVEN NOT BY COST REDUCTIONS (SUCH AS LAYOFFS,) BUT RATHER BY SUBSTANTIAL INCREASES IN ALITALIA'S FINANCIAL ASSETS AND COMMERCIAL PRESENCE. HE HAS CALLED FOR THE GOI TO QUICKLY "INVEST" AT LEAST 600 MILLION EUROS TO CONVERT ALITALIA'S LONG-RANGE FLEET OF AIRCRAFT TO A MEDIUM-RANGE FLEET AND TO OPEN NEW ROUTES. ¶4. (SBU) MENGOZZI'S EFFORTS TO RESTRUCTURE ALITALIA -- BY ELIMINATING EXCESS STAFF AND COSTS AND THEN SWIFTLY PRIVATIZING THE FIRM -- WERE SUPPORTED BY TRANSPORT MINISTER LUNARDI AND FINANCE MINISTER TREMONTI, BOTH OF WHOM ARE TECHNOCRATS RATHER THAN PROFESSIONAL POLITICIANS. THIS PLAN WOULD HAVE SAVED THE ITALIAN GOVERNMENT MILLIONS OF EUROS ANNUALLY. TREMONTI AND BRUNO TABACCI, CHAIRMAN OF THE CHAMBER OF DEPUTIES COMMITTEE ON PRODUCTIVE ACTIVITIES, HAD ARGUED FOR AN EVEN TOUGHER APPROACH. THEY PROPOSED APPOINTING AN EXTERNAL COMMISSIONER TO RESTRUCTURE ALITALIA AND PRIVATIZE IT AS QUICKLY AS POSSIBLE. ¶5. (SBU) DEPUTY PRIME MINISTER GIANFRANCO FINI AND UNDER SECRETARY FOR THE COUNCIL OF MINISTERS GIANNI LETTA TOOK A SIPDIS DIFFERENT APPROACH. FINI MADE THE CASE THAT THE GOI COULD NOT WITHSTAND THE INEVITABLE CLASH WITH LABOR UNIONS THAT WOULD RESULT FROM THE LAYOFF OF 3,000 TO 5,000 EMPLOYEES OUT OF A TOTAL ALITALIA LABOR FORCE OF 20,000. HE ARGUED THAT IT WAS BETTER TO SAVE THESE JOBS AND END THE ALITALIA LABOR DISPUTE ON THE EVE OF EU PARLIAMENTARY ELECTIONS. ¶6. (SBU) COMMENT: ON THE ALITALIA ISSUE, THE PRIME MINISTER AND HIS CABINET WERE FACED WITH A CLEAR CHOICE BETWEEN FREE-MARKET, COMPETITIVE POLICIES (WITH LABOR PROTESTS) OR BUSINESS AS USUAL. IN THE FACE OF THE UPCOMING ELECTIONS, THE DECISION WAS MADE TO AVOID CONFLICT. AS A CONSEQUENCE, THE BLOATED, INEFFICIENT ALITALIA WILL CONTINUE TO BE A DRAIN ON THE ITALIAN GOVERNMENT FOR THE FORESEEABLE FUTURE. SEMBLER NNNN 2004ROME01080 - Classification: UNCLASSIFIED