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Italian Government Approves Alitalia Bankruptcy, Bonds Collapse
Italian Government Approves Alitalia Bankruptcy, Bonds Collapse
Why the speedy decision to grant administration proceedings caught many investors, and certainly bondholders by surprise, is that as we noted earlier, the carrier is losing about €1 million ($1.1 million) a day and without government support risks running out of cash by the middle of May. The government has already thrown it a short-term lifeline, a bridging loan of up to 600 million euros to see it through the bankruptcy process. Absent a sale – which looks highly unlikely – or a nationalization, up to 12,000 workers are likely to lose their jobs, potentially resulting in another major shock to the Italian economy.
This is precisely the scenario that the Italian Economic Development minister warned about last Sunday: “A [sudden closure] would be a shock for GDP much greater than the scenario that we are looking at: a brief period of six months covered by a bridging loan from the government so as to find a buyer who could provide services that Italians need as travelers,” he said in an interview with Sky TG24 television.
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Italy Warns Sudden Collapse Of Alitalia Would Lead To “Great Shock” For The Economy
Italy Warns Sudden Collapse Of Alitalia Would Lead To “Great Shock” For The Economy
That Italy has a bank solvency problem will not come as a surprise to anyone who has been following events in Europe for the past 7 years.
Just yesterday, Italian daily La Stampa reported that four months after the third government bailout of Italy’s third largest bank in as many years, the Italian government may have to inject even more cash than planned into Monte Paschi, the world’s oldest and apparently always insolvent bank.
Stampa cited the outcome of an ECB inspection, focusing on uncertainties from the bank’s planned bad loan reduction. The Italian daily noted that the ECB had communicated results of its inspection to the bank last week, noting that losses are now expected to be well above those calculated until now. Specifically, while the proposed €8.8BN recapitalization would be sufficient to take the bank’s CET1 above the required regulatory level, it would not be sufficient to meet the ECB SREP requirements, raising the risk the government will have to contribute more than the €6.6BN currently envisaged.
But while Monte Paschi continues to be a perpetual drain of taxpayer funds, the most imminent threat facing the Italian economy comes not from the banking sector, but from its just as troubled national airline carrier. Last week, Alitalia said it had exhausted all options after workers voted against job cuts aimed at salvaging the cash-strapped Italian airline, pushing it toward administration for the second time in a decade.
According to Bloomberg, a €2 billion recapitalization tied to the savings plan is effectively dead and Alitalia would start appropriate “legal procedures” as funds run out, the Rome-based airline said. Chairman Luca Cordero Di Montezemolo “formally” communicated to the Italy aviation authority that the carrier decided to start the process of naming a administrator, the authority said on its website last Tuesday.
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