KBRA Comments on the Impact of Alitalia Extraordinary Administration Request on Aircraft Lessors

NEW YORK--()--On May 2, 2017, the shareholders of Italy’s flag carrier, Alitalia, voted unanimously to file for extraordinary administration in Italy, a form of creditor protection under Italian law that is similar to U.S. Chapter 11 bankruptcy-code protection. An extraordinary administration typically seeks to restructure large-scale organizations burdened with significant debt and other liabilities. Under Italian law, administrators will be appointed to determine whether the airline should reorganize or be liquidated for the benefit of creditors.

Alitalia was the subject of a bail-out in 2014 by means of a significant capital injection from Etihad Airways, with goals of achieving profitability during 2017. However, increased competition on routes operated by U.K.-based carriers and significantly higher labor costs led to the ultimate failure of Etihad Airways’ profitability goals for Alitalia. During late April 2017, labor unions representing Alitalia workers rejected a plan that called for job reductions and pay cuts for workers. Following the failure of these negotiations, Etihad Airways signaled an unwillingness to invest additional capital into the company and shareholders ultimately agreed to file for extraordinary administration proceedings on May 2, 2017.

Over the past year, Kroll Bond Rating Agency (KBRA) has closely monitored the developments relating to Alitalia through discussions with aircraft lessors/servicers and industry participants as well aircraft manufacturers and has published a comment with respect to the impact on our rated ABS transactions.

KBRA rates a number of aircraft lessors and is also following the developments with Alitalia’s restructuring and its impact on the lessors, some of whom have notable exposure to the airline. KBRA is also considering the potential effects of this filing with respect to certain aircraft types that may be under more pressure, given the airline’s potential plans for decreasing participation in certain markets. As such, KBRA will publish a more comprehensive commentary on the aircraft lessors and the market as a whole once more data is gathered from relevant market participants.

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About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).

Contacts

Analytical:
KBRA
Marjan Riggi, 646-731-2354
Managing Director
mriggi@kbra.com
or
Danise Chui, 646-731-2406
Director
dchui@kbra.com
or
Leah Hallfors, 301-969-3242
Associate Director
lhallfors@kbra.com,
Andrew Kabala, CFA, 646-731-2447
Director
akabala@kbra.com

Contacts

Analytical:
KBRA
Marjan Riggi, 646-731-2354
Managing Director
mriggi@kbra.com
or
Danise Chui, 646-731-2406
Director
dchui@kbra.com
or
Leah Hallfors, 301-969-3242
Associate Director
lhallfors@kbra.com,
Andrew Kabala, CFA, 646-731-2447
Director
akabala@kbra.com