Alitalia admitted to Air France/Delta-led alliance

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Justin Wastnage / rome

Air France believes that consolidation among Europe's airlines will be gradual and built on agreements such as Alitalia's entrance into the SkyTeam alliance last week.

The Italian flag carrier was formally admitted into the Air France and Delta Air Lines-led grouping in Rome and will step up integration with its French partner in parallel. Alitalia joins Aeromexico, CSA Czech Airlines and Korean Air in the third-largest airline grouping after Star Alliance and Oneworld. Delta's chief executive Leo Mullin puts a 10-member limit on the group, saying that it will focus instead on offering "seamless customer service integration". His Air France counterpart Jean-Cyril Spinetta says finding a Chinese partner is now the top priority, with other areas of weakness, such as South America, close behind.

Spinetta rebuffs suggestions that Alitalia's financial problems could bring down the relative success of the alliance, saying: "At the time Delta signed the agreement with us, people asked why it was getting involved with such a rotten company, but they have been proved wrong, as will Alitalia's doubters."

Spinetta was keen to stress that the Alitalia deal is purely a commercial agreement and that any eventual merger is a long way off. The two airlines will, subject to their respective shareholders' agreements, swap tiny equity stakes later this year with a larger swap before 2003. This trust-gaining exercise before more serious involvement fits in with Spinetta's outline of the airline landscape for this decade. He cites KLM's close links with Northwest as an example of how close commercial partnerships rather than mergers can work in Europe, before the "huge obstacles" in the way of consolidation can be overcome. "In 2010, I'm not even sure how many fewer national airlines there will, but consolidation will not happen as fast as many predicted."

One example of how the commercial approach will work is the continued use of both Alitalia hubs, Rome Fiumicino and Milan Malpensa, in addition to Air France's Paris Charles de Gaulle for SkyTeam.

Alitalia's chief executive Francesco Mengozzi says the alliance, which becomes effective on 1 November, is just one tool to return to profitability. The carrier has also embarked on a wider programme, led by consultants, including route and fleet cutbacks.

"We have a serious problem due to the number of aircraft we have in each type. This is particularly acute on long-haul types." The carrier operates Airbus A320 family aircraft as well as Boeing MD-11, MD-80, 737, 747 and 767s.

Mengozzi expects to announce any fleet changes by the end of September and says that significant investment will be needed to finance the plan. The newly elected government in Rome will have to decide on the long-delayed privatisation plans, but the Italian finance minister Giulio Tremonti refuses to discuss investment plans after the European Commission ruled its planned third wave of state financing, worth almost c400 million ($350 million), illegal under EU competition law.