Concluding its investigation into two Italian state loans to Alitalia (AZ, Rome Fiumicino) in 2017 totalling EUR900 million euros (USD1.06 billion), the European Commission has said they were illegal and must be recovered, plus interest, from the bankrupt carrier. But ITA - Italia Trasporto Aereo (AZ, Milan Linate), its slimmed-down state-owned successor, is not liable for repaying it.

The European Union competition regulator gave the green light to ITA in a statement on September 10 as, in executive vice-president Margrethe Vestager’s words, “Italy has demonstrated that there is a clear break between Alitalia and the new airline, and that its investment in ITA is in line with terms that a private investor would have accepted.”

She added: “Once ITA takes off, it is for Italy and ITA’s management to make use of this opportunity once and for all. And we will continue to do our part to ensure fair competition in the European aviation sector.”

In a separate statement on the same day, she clarified that the two public loans of EUR600 million (USD707 million) and EUR300 million (USD353 million) handed to Alitalia in May and October 2017, respectively, “gave the company an unfair advantage over its competitors, in breach of EU state aid rules” and the recovery of the sum will “help restore a level playing field in the European aviation industry.”

The approval of ITA follows months of negotiations between Brussels and Rome to prepare the new carrier for launch on October 15 and to prevent aid issued in pre-Covid times from hindering its take-off.

Starved of funds, Alitalia is unlikely to be able to repay the aid, even with the sale of its assets, local media speculated. The European Commission is also still investigating another support measure Italy granted to Alitalia, of EUR400 million (USD470 million) in 2019.

The commission’s probe showed that, when granting the loans to Alitalia, “Italy did not act like a private investor would have done, as it did not assess in advance the probability of repayment of the loans, plus interest.”

It also concluded that ITA is not “the economic successor” of Alitalia, and so it is not liable to repay the illegal state aid Alitalia received. And it found that Italy’s capital injection of an initial EUR1.35 billion (USD1.6 billion) to kickstart the new airline is in line with market conditions and so does not amount to state aid.

Nevertheless, this is less than the EUR3 billion (USD3.5 billion) the Italian government said it had set aside for ITA. Rome will need additional European Commission approval before it can inject the remainder.

When ITA launches with less than half of Alitalia’s fleet, it also plans to employ far fewer people than the current workforce of 11,000 - and under less generous labour contracts. That uncertainty has sparked union-led protests in Rome.

Meanwhile, the new airline risks losing Alitalia’s five pairs of valuable slots at London Heathrow, as from October 31 it will technically no longer have them, the business daily Il Sole 24 Ore reported on September 11. On August 31, a deadline to apply to renew the slots for the coming winter season starting on October 31 expired.

Alitalia sold the slots in 2014 to former shareholder Etihad Airways (EY, Abu Dhabi Int'l) for EUR60 million (USD70.7 million) and has since been renting them for EUR10,000 (USD11,800) a day. Etihad repeatedly urged Alitalia to apply but no response came, according to the newspaper, and the Gulf carrier decided to do so itself so as not to lose them. ITA will now have to strike a new deal on the expensive slots with Etihad or buy them directly from Heathrow.