Hot Take: Delta’s Hypocritical Planned Stake In Alitalia

Delta has long sought to expand its global dominance and influence in commercial air travel. When economic opportunities avail themselves, Delta waits along the sidelines to step in and get investment stakes on the cheap. Now eyeing Alitalia, Delta plans to buy a 10% stake in the failing Italian flagship airline.

Alitalia To Re-Emerge As New Airline

Alitalia has been losing money for years and continued injections of money (from the Italian government, shouldered by the taxpayers) has failed to avert a financial collapse.

Now, it has been revealed that Alitalia will re-emerge later in July as a new company. As a part of the emergence of a “new” Alitalia, the Italian local railway operator (Trenitalia, which is a division of the Italian government) and the Italian government will take a 50% stake in the newly formed Alitalia. This is similar to a bankruptcy (maybe Delta can offer some advice on that process) leaving the airline’s bad debt into the hands of the Italian taxpayers.

Delta Plans to Acquire 10% of Alitalia

According to Italian L’Economia, Delta has agreed to buy a 10% stake in Alitalia; the airline that fails over and over and is propped up by Italian taxpayers.

The scheme is a veiled nationalization of the former national airline, focusing on the establishment of a new company where the majority of the capital will be in public hands.

The certainty of the commitment of Delta Airlines, which will subscribe a 10% stake, is counterbalanced by the uncertainty on the other shareholders that receive the remaining 40% of shares. 

Delta Argues Against Airline Subsidies Unless It Benefits Them

This also comes as Delta has fought against the potential competition of Air Italy in the Italian commercial airline market.

Delta perceives a threat of transatlantic competition.  Not surprising, Delta has taken issue with Air Italy primarily as it is almost half-owned (49%) by Qatar Airways. Qatar and Air Italy had hopes of becoming the successor to Alitalia if that airline failed.

Delta has positioned its investment in Alitalia to enjoy both U.S. and European transatlantic antitrust immunity. It’s the same strategy implemented with Delta, Air France, and KLM. This basically puts Delta’s plan to buy a stake in Alitalia on unfair competitive ground with Qatar’s investment in Air Italy.

Delta blasts the Gulf airlines (Qatar, Etihad and Emirates) for unfair competition because Delta argues they get government subsidies.

Delta is on an everlasting fight against the ME3

However, Delta was a great recipient of the government’s bailout post 9/11, allowing Delta to carry forward tax losses through recent years of great profitability. As Delta emerged from Chapter 11 bankruptcy protection it had also cut jobs, shed debt and restructured its debt — all under the protection of the US government.

Delta’s international tactic has seen the airline take stakes in many government subsidized (directly or indirectly) airlines.

Delta does this when it benefits their global strategies. These have included stakes in Aeromexico (49%,) China Eastern (China’s most heavily state-subsidized airline,) and has penned an agreement to purchase up to 10% of Korean Airlines, which has in the past been the recipient of unfair government intervention. Delta is also a stakeholder in KLM/Air France and Virgin Atlantic.

Partnership for Fair and Open Skies

Delta has argued against subsidized airlines through its involvement with Partnership for Fair and Open Skies. This partnership is a lobbying consortium of a few US airlines arguing that Gulf carriers were violating the Open Skies agreement.

They argued this costs American jobs through unfair competition. Through Open Skies, Delta argues that “the governments of Qatar and the UAE have provided $52 billion in subsidies and other unfair benefits to Qatar Airways, Etihad Airways and Emirates.”

Delta got some US Senators to introduce legislation to combat these Gulf carriers, but that failed. Delta then pinned its hope on President Trump.

The US Government disagreed and sided with the Gulf airlines’ arguments. The US Department of State stated that after looking seriously into the allegations leveled by Delta, United, and American, it decided that no formal action was necessary with regards to the Open Skies agreement with Gulf carriers.

Still, Delta has their own interpretation and rationale for their own self-serving interests. Their logic somehow supports their plan to buy a stake in Alitalia to further their global influence. At a time when Delta and other US carriers are seeing record profits, they argue against unfair competition.

Delta’s Joint Ventures and Airline Investments

Delta holds a stake in Virgin Atlantic, amongst other airlines

Delta has entered into joint ventures (many with partial ownership) with the following airlines.

• Air France–KLM/Alitalia
• Virgin Atlantic
• Aeromexico
• Korean Air
• WestJet
• Virgin Australia

The Upshot

Delta’s commitment to buy a stake in Alitalia underscores what appears to be a classic example of business hypocrisy. Delta’s decision appears to confirm they feel government subsidies and support are fair when it potentially helps them. However, these same subsidies are bad when they create a competitive market in Delta’s sphere of operations. In short, Delta’s investments in clearly state-subsidized airlines are fine as long as it benefits them through increased revenues.