Alitalia: Negotiations to acquire windjet have broken down

Following today?s statements from WindJet?s CEO, clearly affirming the Catania-based carrier has no intention of complying with the terms and conditions of the agreements signed on 2 and 3 August, Alitalia states there is no more scope for further negotiations with WindJet to acquire the carrier.

Alitalia underlines that, despite its desire to carry out the operation, WindJet has failed to meet the dates and obligations resulting from the various agreements signed with Alitalia, thus constituting an unacceptable risk for a reliable and responsible management.

The preliminary takeover agreement was signed on 13 April ?with a deadline of 29 June. WindJet had already failed on this date to provide the majority of documents necessary to conclude the agreement on the basis of a clear valuation of the company including asset and liability statements, balance sheets, profit and loss accounts and those on its relationships with the companies that own the planes.

The absence of these documents made the WindJet takeover far more risky for Alitalia from the point of view of the debt they were taking on.

Despite this, Alitalia had been engaged for weeks in difficult renegotiations of the agreement, made even more complicated by a late and extremely unfavourable Antitrust decision.

A ?new ?agreement,? based ?on ?Alitalia ?taking ?on ?more ?risk ?in ?return ?for ?greater ?bank guarantees, was approved on 7 August ?by Alitalia?s Executive Committee, called solely to approve the new conditions agreed with WindJet.

On 9 August ?WindJet informed Alitalia it was unable to fulfil those obligations resulting from the new contract and wishing to call it into question once again, requested Alitalia sign without having a full picture of the financial and operational sustainability of the operation.

In particular, despite Alitalia?s continuous requests, WindJet had never provided proof of meeting certain specific contractual and economic obligations with the engine maintenance supplier and one of the plane owners.

This lack of cover would have cost Alitalia an extra 10 million Euros once the engines had been serviced and the planes returned at the end of the leasing period.

This operation involved Alitalia acquiring a newco, set up for this purpose, to which WindJet would have contributed the business necessary to exercise airline activities in return for Alitalia taking on a significant debt.

However, over the past few days Alitalia has continued to engage in negotiations to reach an agreement, aimed ?at ?guaranteeing and ?safeguarding not ?only ?the ?interests of ?WindJet

passengers, especially during a period of such significant traffic as that of the summer, but also the company?s workers and business, as well as the Sicilian territory.

ANTITRUST DECISION

This situation was also complicated by a very unfavourable Antitrust decision arriving later than hoped.

Following preliminary investigations due to dominant position, Alitalia had initially proposed giving up WindJet slots on Milan Linate airport.

In the days immediately preceding the Antitrust decision, it emerged that WindJet did not own the slots it operated on the Catania ? Milan Linate route, a fact the air authorities were aware of from the very beginning.

Therefore, the Antitrust was asking Alitalia to give up slots from its portfolio in return for

WindJet slots that did not really exist.

This Antitrust decision would not only have resulted in Alitalia not acquiring new slots on Catania – Milan Linate but also loosing slots it had before the beginning of the operation. At the end of the operation Alitalia would have been in a more unfavourable position than before.

The Antitrust decision had worsened the expected synergies by around 20 million Euros in the first year and 30 million Euro in the second.

Despite this, Alitalia had continued with negotiations.

The last piece missing was certification of the state of the fleet, necessary to evaluate

WindJet. But this never arrived.

ORDER OF EVENTS

• 25 January 2012: Alitalia?s Board of Directors approves the WindJet merger on the basis of the memorandum of understanding signed by the two companies on 20 January.
• 13 April ?2012: the Alitalia Group signs the contract to acquire the WindJet passenger airline business. The operation is subject to the successful outcome of a series of market and legal conditions identified in the contract including, in particular: authorisation from the Antitrust Authority, ENAC judgement and a series of certificates necessary to define the company?s value.
• 29 ?June ?2012, ?date ?within ?which ?the ?operation should ?have ?been ?concluded. The agreement had still not been reached as WindJet had failed to meet certain conditions as regards providing certain documents such as asset and liability statements, balance sheets, profit and loss accounts and those on its relationships with the companies that own the planes.
• In addition to WindJet failing to meet these conditions, the Antitrust decision of 18 July?2012 was later than hoped and very unfavourable. The Antitrust Authority authorised the?operation, however subject to relinquishing 5 pairs of slots (departure and arrival times) on the Catania – Milan Linate, Palermo – Milan Linate and Catania – Rome Fiumicino routes. The Antitrust decision changed the profile of the operation significantly.
• Negotiations start reaching an agreement on 2 and 3 August ?2012. Alitalia?s Executive Committee meets on 7 August ?to authorise the CEO to sign the new contract, based on Alitalia taking on greater risks in return for greater bank guarantees, once the missing documents arrive.
• 9 August ?2012, WindJet sends Alitalia a letter confirming it does not have the documents necessary to conclude the operation and once again calls into question the agreements reached to continue negotiations.