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Watch the trailer at: http://www.foxsearchlight.com/theclearing/index_nyt.html \----------------------------------------------------------/ Italy Weighs Tax Breaks as a Way to Help Ailing Alitalia April 21, 2004 By ERIC SYLVERS MILAN, April 20 - As it hovered near bankruptcy, Alitalia, Italy's flagship air carrier, gave some hints on Tuesday of a turnaround plan that it referred to as a "hypothesis," as the government considered offering tax breaks to the entire airline industry. After ruling out a sale of Alitalia two months ago, Prime Minister Silvio Berlusconi is weighing a decree to offer tax breaks to all airlines operating in Italy. In addition, the decree would give airlines access to a government program that lets companies lay off employees with the government picking up most of their salary for several years. Though the plan does not specifically mention Alitalia, the flagship would stand to benefit most as it has half the air travel market in Italy. The government is hoping to give Alitalia some breathing room, but it is also betting that it can get European Union approval for the plan by broadening it to include all airlines, thus avoiding accusations of illegal aid to government-owned companies. Alitalia is 62 percent owned by the government and has lost money in three of the last four years. The European Commission has already begun scrutinizing the Italian government's not-yet-official plan for the airline sector and the commission's president, Romano Prodi, himself Italian, has raised doubts that it is legal. A minister from the Berlusconi government attributed Mr. Prodi's response to political rivalry. Alitalia aspires to join the Air France- KLM merger, but those airlines have said that Alitalia could join only if the Italian government significantly reduced its stake, something Mr. Berlusconi has ruled out. The plan Alitalia presented on Tuesday was light on financial details, as it was not yet clear whether the tax decree would materialize and how negotiations with its roughly 10 unions would end, the airline said. Alitalia did say that it expects its revenues to increase 30 percent by 2006 from 4.4 billion euros ($5.2 billion) last year. The airline also planned to increase capacity by 12 percent a year through 2006 and said it would seek to deepen its commercial alliance with Air France. The government's decision on the decree could come this week. Alitalia lost 511 million euros ($608 million) in 2003, an amount that was more than a third the value of the airline's assets. In Italy, that is the cutoff point at which a company must either find fresh capital to cover its losses and debt, or file for bankruptcy. In addition, Alitalia's stock has slumped nearly 90 percent in the last five years, making it difficult to persuade anyone to buy new shares. If Alitalia gets the tax breaks under consideration, it could apply the money saved to last year's results, lower its net loss and no longer be forced to raise capital or seek bankruptcy protection. Some airlines, like British Airways, have been able to revamp by firing thousands of employees after the Sept. 11, 2001, attacks, and others, like Air France, have been able to radically cut costs. But Alitalia has not yet formulated a response to the crisis in the airline sector. In October, Francesco Mengozzi, then Alitalia's chief executive, proposed a revamping plan that called for 1,400 layoffs and the moving of 1,300 people from Alitalia to other companies that would do outsourced work for Alitalia. The airline's unions rejected that plan and when the government's support began to waffle, Mr. Mengozzi resigned in February. The new chief, Marco Zanichelli, has been meeting with unions over the last month and has promised to take their suggestions and the government decree into consideration in his final bailout plan for the airline, which should be presented by May 20. The decree, which has not yet been finalized, is likely to include tax breaks on gasoline and tickets sales as well as lower landing and takeoff fees. The transportation industry would also be included in an unemployment program in which laid-off employees would be paid most of their salary by the government. The workers would be rehired only if Alitalia needed them. The automaker Fiat used the plan to move thousands of workers off its payroll last year and then rehired some when its financial situation improved. http://www.nytimes.com/2004/04/21/business/worldbusiness/21alitalia.html?ex=1083557114&ei=1&en=023b64e595009ea9 --------------------------------- Get Home Delivery of The New York Times Newspaper. 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