US embassy cable - 04ROME1080

UNCLAS ROME 001080 
 
SIPDIS 
 
 
SENSITIVE 
 
DOL FOR ILAB/BRUMFIELD; 
DOT FOR OFFICE OF INTERNATIONAL AVIATION; 
DEPT. FOR EUR/WE, EB/AVP AND DRL/IL; 

E.O. 12958: N/A 
TAGS: EAIR, ELAB, IT, PGOV, AVIATION 
SUBJECT: BUSINESS AS USUAL AT ALITALIA: ZANICHELLI BECOMES 
NEW MANAGING DIRECTOR 
 
(U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED.  PLEASE PROTECT 
ACCORDINGLY.  NOT FOR INTERNET DISTRIBUTION. 
 
1. (U) FRANCESCO MENGOZZI RESIGNED AS ALITALIA'S MANAGING 
DIRECTOR ON FEBRUARY 28, AND WAS REPLACED BY MARCO 
ZANICHELLI, FORMER DIRECTOR GENERAL AND A MEMBER OF 
ALITALIA'S BOARD OF DIRECTORS.  ZANICHELLI WILL BE ASSISTED 
BY TWO GENERAL DIRECTORS:  GLENN HOUENASTEIN, AN AMERICAN 
CITIZEN FORMERLY OF CONTINENTAL AIRLINES, AND LUCA EGIDI, 
ALITALIA'S FINANCIAL MANAGER. 
 
2. (SBU) FRANCESCO MENGOZZI, WHO HAS BEEN MANAGING DIRECTOR 
SINCE EARLY 2001, HAD LOST POPULAR AND POLITICAL SUPPORT 
BECAUSE OF HIS UNPOPULAR PLAN FOR REFORMING ALITALIA TO MAKE 
IT PROFITABLE, A PRECONDITION FOR PRIVATIZING THE LARGELY 
STATE-OWNED AIRLINE.  MENGOZZI HAD PROPOSED CUTTING 
ALITALIA'S BLOATED AND INEFFICIENT LABOR FORCE BY LAYING OFF 
1,548 EMPLOYEES AND CONTRACTING OUT 1,200 OTHER POSITIONS. 
THE MANY STRIKES BY ALITALIA EMPLOYEES IN PROTEST OF THIS 
PLAN HAD COST THE AIRLINE HUNDREDS OF THOUSANDS OF EUROS. 
THE RESULTING STANDOFF LED PRIME MINISTER BERLUSCONI TO ASK 
FOR A NEW PLAN FOR RESTRUCTURING THE AIRLINE, IN WHICH THE 
ITALIAN GOVERNMENT IS A MAJOR STOCKHOLDER. 
 
3. (SBU) WHILE MENGOZZI WAS COMMITTED TO THE SWIFT 
    PRIVATIZATION OF ALITALIA, PROBABLY VIA A MERGER WITH AIR 
FRANCE AND KLM, ZANICHELLI HAS STATED THAT ALITALIA NEEDS A 
CAPITAL INFUSION AND MUST BE MADE PROFITABLE BEFORE ANY (EVEN 
PARTIAL) PRIVATIZATION.  ZANICHELLI PREFERS TO SEE THE 
PROCESS DRIVEN NOT BY COST REDUCTIONS (SUCH AS LAYOFFS,) BUT 
RATHER BY SUBSTANTIAL INCREASES IN ALITALIA'S FINANCIAL 
ASSETS AND COMMERCIAL PRESENCE.  HE HAS CALLED FOR THE GOI TO 
QUICKLY "INVEST" AT LEAST 600 MILLION EUROS TO CONVERT 
ALITALIA'S LONG-RANGE FLEET OF AIRCRAFT TO A MEDIUM-RANGE 
FLEET AND TO OPEN NEW ROUTES. 
 
4. (SBU) MENGOZZI'S EFFORTS TO RESTRUCTURE ALITALIA -- BY 
ELIMINATING EXCESS STAFF AND COSTS AND THEN SWIFTLY 
PRIVATIZING THE FIRM -- WERE SUPPORTED BY TRANSPORT MINISTER 
LUNARDI AND FINANCE MINISTER TREMONTI, BOTH OF WHOM ARE 
TECHNOCRATS RATHER THAN PROFESSIONAL POLITICIANS.  THIS PLAN 
WOULD HAVE SAVED THE ITALIAN GOVERNMENT MILLIONS OF EUROS 
ANNUALLY.  TREMONTI AND BRUNO TABACCI, CHAIRMAN OF THE 
CHAMBER OF DEPUTIES COMMITTEE ON PRODUCTIVE ACTIVITIES, HAD 
ARGUED FOR AN EVEN TOUGHER APPROACH.  THEY PROPOSED 
APPOINTING AN EXTERNAL COMMISSIONER TO RESTRUCTURE ALITALIA 
AND PRIVATIZE IT AS QUICKLY AS POSSIBLE. 
 
5.  (SBU) DEPUTY PRIME MINISTER GIANFRANCO FINI AND UNDER 
SECRETARY FOR THE COUNCIL OF MINISTERS GIANNI LETTA TOOK A 
 
SIPDIS 
DIFFERENT APPROACH. FINI MADE THE CASE THAT THE GOI COULD NOT 
WITHSTAND THE INEVITABLE CLASH WITH LABOR UNIONS THAT WOULD 
RESULT FROM THE LAYOFF OF 3,000 TO 5,000 EMPLOYEES OUT OF A 
TOTAL ALITALIA LABOR FORCE OF 20,000.  HE ARGUED THAT IT WAS 
BETTER TO SAVE THESE JOBS AND END THE ALITALIA LABOR DISPUTE 
ON THE EVE OF EU PARLIAMENTARY ELECTIONS. 

6. (SBU) COMMENT:  ON THE ALITALIA ISSUE, THE PRIME MINISTER 
AND HIS CABINET WERE FACED WITH A CLEAR CHOICE BETWEEN 
FREE-MARKET, COMPETITIVE POLICIES (WITH LABOR PROTESTS) OR 
BUSINESS AS USUAL.  IN THE FACE OF THE UPCOMING ELECTIONS, 
THE DECISION WAS MADE TO AVOID CONFLICT.  AS A CONSEQUENCE, 
THE BLOATED, INEFFICIENT ALITALIA WILL CONTINUE TO BE A DRAIN 
ON THE ITALIAN GOVERNMENT FOR THE FORESEEABLE FUTURE. 
SEMBLER 
 
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	2004ROME01080 - Classification: UNCLASSIFIED