Low Cost Airlines Condemn 'Illegal State' Aid Planned For Alitalia

by Ulrika Lomas, for LawAndTax-News.com, Brussels

07 October 2004

A group of 11 low cost European airlines on Tuesday wrote to Transport Commissioner, Loyola de Palacio, arguing that the debt restructuring program recently unveiled by the Italian government for troubled airline Alitalia constitutes illegal state aid.

Under the terms of the rescue plan, designed to prevent Alitalia from sinking under its EUR1.63 billion debt, the company would be split into two units, ground service (AZ Service) and flight operations (AZ Fly), with the flight operations unit to benefit from a recapitalisation in early 2005 of up to EUR2 billion.

According to the Financial Times, the European Low Fares Airlines Association (ELFAA) threatened in its letter to challenge the planned deal in the European courts if it is permitted to go ahead, arguing that:

"The shift of Alitalia's existing EUR1.6 billion ($1.97 billion) debt to the AZ service unit is unambiguous. Assymetrical distribution of the original company's liabilities would be tantamount to illegal state aid."

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