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27 Jun, 2007 17:29

Aeroflot pulls out of Alitalia deal

Russian national airline carrier Aeroflot has ditched its bid for a controlling stake in Italy's loss-making flagship carrier Alitalia.

The move leaves two remaining bidders – U.S. private equity fund Matlin Patterson, and smaller Italian airline Air One.  But analysts believe Air One to be the only serious contender.  

Italian media has speculated that Matlin Patterson, which rejoined the running earlier this month, could again pull out.  

The Italian government put its 49.9% stake in Alitalia up for sale after it failed repeatedly to turn around the loss-making state airline.

The privatisation initially attracted eleven bidders, but Italy’s trade unions threatened to fight any job losses, prompting the Government to attach conditions to the sale.

As bidders fell by the wayside, Aeroflot with its Italian partner Unicredit was one of three left standing.

The companies were given an opportunity to study the finances of Alitalia before making their offers.  

At this stage Aeroflot decided to pull out of the bid.

“The general outline and the general strategy of the bid has changed in the process.  Our initial ambition to invest most of our financial resources into restructuring the company was not accepted. The conditions of the bid meant that a significant amount of our investment would be made into shares and paid to the Italian government,” Lev Koshlyakov, Deputy CEO of Aeroflot mentions.
Some market watchers, however, believe Alitalia and Aeroflot could never have been a good partnership.

“We believe the target company is actually bigger than the acquiring company. In terms of passengers carried, Alitalia was four times bigger than Aeroflot and in terms of revenue it was twice as big as Aeroflot in 2006. The deal, if it comes off, would be very difficult for Aeroflot to digest,” says Eduard Faritov, analyst at Renaissance Capital investment company in Moscow.

The purchase of Alitalia was supposed to have given Aeroflot greater access to the EU market.

The carrier says it is committed to expanding in Europe, both by increasing its own operations there, and by acquiring strategic assets.

Aeroflot's Deputy CEO says the company is in negotiation with the Serbian government to buy the country's flag carrier JAT.