Aviation and competition: how to choose a partner for Alitalia

Although the bid of AirFrance for the acquisition of Alitalia is now defunct the judgement of the Italian administrative court concerning the legality of the procedure followed by the Italian government for the divestment of its shareholdings in Alitalia may be of interest (Regional Administrative Tribunal of Lazio –TAR- case n. 897/2008, AP Holdings v Presidency of Council of Ministers et al).

Air One, a fierce competitor of Alitalia in the Italian air transport market, challenged before the TAR the decision of the Minister of Economy to allow Alitalia starting an exclusive negotiation with Air France purporting to the transfer of the controlling shareholding to the French carrier. According to the plaintiff such a decision breaches article 1 of the Act n. 474/94 and the decree of the Presidency of Council of Ministers which regulate the divestiture of publicly held shareholdings. In particular, it infringes the general rule that the entity to which transfer publicly held shareholdings must be chosen with a procedure consistent with the principles of transparency and non-discrimination.

The TAR finds for the government. First, it observes that the contested decision was not based upon public interest considerations. On the contrary, it was based upon business considerations, the most relevant of which was the priority to find a financial and industrial partner which was committed to the rescue of Alitalia and turn it around.

Second, the TAR makes it clear that with the impugned decision the Minister of Economy did not decide to divest of its shareholdings; it only positively evaluated the plan tabled by Air France for the acquisition and restructuring of Alitalia. So, such a decision does not need to be compliant with the principles of transparency and non-discrimination. It is only the decision to divest that has to abide by these principles.

The Minister of the Economy has identified a number of ways for the divestiture of its shareholdings in Alitalia, among which takeover bids. According to its plan, Air France should have purchase Alitalia shares with a takeover bid. Air One was unhappy with that solution it considered incompatible with the principles of transparency and non-discrimination.

The TAR, instead, finds that takeover bids meet the statutory requirements of transparency and non-discrimination. A participant that first proposes a bid does not enjoy any competitive advantage over the other potential bidders. Anybody else, including Air One, can propose an alternative bid, which, if better than those proposed by the competing bidders, will be accepted by shareholders of the target.

To sum up, the lesson that can be drawn from this judgment is that the choice of the person to whom transfer publicly held shareholdings must be consistent with the principles of transparency and non-discrimination. These requirements can be also met by instruments of private law as takeover bids, the ideas of transparency and non-discrimination are inbuilt in the rules governing them.