A final attempt to save Alitalia

According to Alitalia's former managing director, Roberto Schisano, Italy's national flagship service has barely three months to live. "If a drastic cure does not arrive within 100 days," he told a magazine interviewer last week, "our airlines will disappear from the skies."

The figures make depressing reading. Alitalia has debts of around 3.5 trillion lire (pounds 1.5bn), but only 500 or 600 billion lire in liquid assets. The airline has not made a profit in eight years and is currently losing around one billion lire a day. For the last few months it has been selling off valuable interests, such as its majority stake in the Rome airport authority, but the extra cash seems to disappear almost as soon as it arrives.

The arithmetic is as simple as it is frightening: unless the company can rapidly attract substantial new capital, its assets will have dried up by the end of the year at the latest. It wouldn't be the first national carrier in the world to go bust, but its disappearance would be a severe blow to Italy's fragile sense of national pride - not to mention putting more than 18,000 people out of work.

"We're not a country of idiots. Surely we are capable of saving Alitalia," the Italian prime minister, Lamberto Dini, exclaimed recently. Capable perhaps, but willing is another matter. The state holding company IRI, which has a 90 per cent stake in Alitalia, has promised a 1.5 trillion lire cash injection. But there are two conditions attached.

The first is a settlement of a long industrial dispute with the carrier's pilots, who have staged strike after damaging strike in pursuit of a satisfactory deal on pay and conditions. And the second, stipulated not by IRI but by the European Commission, which must give its consent to any recapitalisation, is a credible business plan to bring the company's runaway finances under control.

Unfortunately, neither condition looks anywhere near being fulfilled. Both have been scuppered by an near-total breakdown in communication between management and the unions - a clash which says as much about post-war Italian political and industrial culture as it does about the problems of yet another ailing European airline.

For much of the period Alitalia was, like all large state-controlled concerns in Italy, a plaything of the powerful, who were far more concerned about carving up jobs and handing out favours than about operating a viable public service. The unions connived with this, obtaining better conditions for Alitalia workers than for any other comparable airline.

In the late 1980s, the money began to dry up, but the freeloading did not. In 1992, Alitalia's costs were 5.9 per cent higher than the average European airline, and 24.6 per cent higher than British Airways'. In the four years since then, the cost of one pilot hour has soared nearly 80 per cent.

After record losses in 1993, IRI finally called in a new management team headed by Renato Riverso, a senior executive with IBM, and Mr Schisano, who was working with Texas Instruments. At much the same time that media tycoon Silvio Berlusconi was promising Italy a free-market revolution, the two men vowed they would inject a US management style into the Alitalia bureaucracy. Together they formulated a three-year plan to cut operating costs by 12 per cent and personnel costs by 20 per cent.

But in the end they had scarcely more luck than Mr Berlusconi, who was hounded out of office after seven months. Mr Schisano, in particular, did not count on the entrenched power of the unions, who quickly identified him as public enemy number one - "the Texan", as they disparagingly called him. Last June, 340 pilots all called in sick with colds at the same time; in response, Mr Schisano had them ordered back to work on pain of criminal charges and sent the tax police to investigate their private financial affairs. Moreover, he began the highly unpopular policy of sub-contracting piloting and cabin crew jobs to an Australian company whose staff were 35 per cent cheaper.

But Mr Schisano was not simply tough, he was devious too. While castigating the pilots in public, he secretly negotiated a 28 billion lire pay rise for them. When news of the deal broke last autumn, Mr Riverso and the management of IRI were so furious that he was summarily fired.

Mr Riverso resumed talks with the pilots using a more conciliatory line, but he got no further than his unhappy erstwhile colleague. Earlier this month he resigned, accusing the unions of intransigence and blaming an "inert, mute and passive" IRI for lack of nerve.

Alitalia is now in the hands of a new general manager, Domenico Cempella, the former head of the Rome airport authority. But the restructuring strategy is in tatters and the long contractual negotiations are back at square one.

Andrew Gumbel