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TRANSCRIPT
Alitalia (AZ) Summary Overview
The Birth of the “New” Alitalia
Alitalia – Compagnia Aerea Italiana (“CAI” or the “Company”) is a private company that started its
operations in January 2009
The Company currently flies to 103 destinations, of which 26 in Italy and 77 for the rest of the world, 186
routes and more than 4,700 weekly flights. In 2013:
– Carried 23 million passengers
– Generated €3.4 billion revenues
One of the youngest fleets in the world with an average age of 6.5 years
Alitalia is a member of the SkyTeam global alliance and, since 2010, forms part
with Air France-KLM and Delta Air Lines of the main air transport
Transatlantic Joint Venture
The Hub Fiumicino Airport
The Crew The Fleet
Source: Companies press releases and websites, news articles.
1
Alitalia: A Long Story of Difficulties Since 2000 Alitalia has cumulated negative results in excess of ca.€9.0bn, including ca.€3.0bn of liquidation costs related
to Alitalia – Linee Aeree Italiane.
Sources: Alitalia annual reports.
Note: (1) As estimated in the report “Alitalia – La privatizzazione infinita”; financial accounts FY2008 not available since on September 2008 Alitalia – Linee Aeree Italiane was declared insolvent and subject to a special bankruptcy
procedure termed extraordinary administration (“amministrazione straordinaria”). (2) Average of two Italian press news, namely “Ecco chi ha pagato il conto. Salvataggio da 3,2 miliardi” (Corriere della Sera, 8 August 2013) and
“Quanto costa chiudere Alitalia. In totale lo Stato pagherebbe direttamente circa 2,9 miliardi” (lavoce.info, 16 September 2008).
Net Income Evolution (€m)
Cumulated Net Income (€m)
Alitalia – Linee Aeree Italiane Alitalia – Compagnia Aerea Italiana
Net Income Evolution (€m)
Cumulated Net Income (€m)
In the period 2000 – 2008E, Alitalia – Linee Aeree Italiane
posted a cumulated net loss of ca.€4.7bn
According to Italian press news, the estimated liquidation cost
amounted to ca.€3.0bn(2)
In the period 2009 – 2013, Alitalia – Compagnia Aerea Italiana
posted a cumulated net loss of ca.€1.4bn
(256)
(907)
93
(512)
(844)
(168)
(626)
(495)
(1,000)
2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008E
(327)
(168)
(69)
(280)
(569)
2009A 2010A 2011A 2012A 2013A
(327) (494) (563) (843)(1,411)
2009A 2010A 2011A 2012A 2013A
(256)(1,163) (1,070) (1,582)
(2,426) (2,594)(3,220) (3,715)
(4,715)
2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008E
2
(1)
Alitalia: History Overview
Source: Companies press releases and websites, news articles.
Notes: (1) Scarcity of connections (rails sand highways) to the city of Milan and other main cities located in the Northern part of Italy. (2) Namely Fiumicino, Linate, Malpensa. (3) Italian State remained with a 49.7% stake. (4) Italian State
remained with a 64% stake.
1950: Alitalia
acquired Lati and
started serving also
LatAm
1946:
Incorporation of
Alitalia
Aereolinee
Italiane
Internazionali
1968: Awarded as 7th
airline globally and 3rd
in Europe, and
became the first
European airline to
have an all-jet fleet
1957:
Alitalia merged
with LAI and
became Alitalia
Linee Aeree
Italiane
2001: Alitalia entered
SkyTeam, joining Air
France, Delta Air
Lines, Korean Air,
Aeromexico and CSA
Czech Airlines
2000: Following the
Malpensa failure to
become an
international hub(1),
KLM decided not to
proceed the alliance
with AZ(2)
2003: Business plan
proposal for
recapitalization and
disposal of the stake
held by the Government
2000-2003:
Global drop in air
traffic. Strategic
refocus on
domestic hauls
End of 2006:
Government failure in
selling a 39.9% stake in
Alitalia, with all the 11
potential buyers
withdrawing their bids
2007: AF – KLM
selected as
potential
candidate to take
over Alitalia
1970-1990: All
airlines except
Alitalia developed
industrial plans to
face the oil crisis
1996: Italian state
disposed 21%
stake to employees
and listed a 15%
stake(4)
1946 – 1970 1970 – 1990 1990 – 2000 2000 – 2006 2007
Early stage growth Deregulation /
Oil Crisis First privatisation
Attempts to relaunch the business through several
industrial plans
Second and third
privatisation attempts
(failed)
Established as State-owned company, Alitalia grew in the early decades up to face the first difficulties following the
deregulations of the sector and the higher competition in the domestic market
2003-2004: Proposed a
new business plan
(Alitalia daily lost €1m).
Italian State provided a
€400m bridge financing
and disposed a 12.3%
stake(3)
3
Alitalia: Recent Developments
Source: Companies press releases and websites, news articles.
Over the 2008–2013 period, the new Alitalia lived a tough economical situation due to both internal and external factors
Aug-08:
Creation of
CAI, investor
consortium led
by R. Colaninno
May-08:
AF-KLM
proposed
merger with AZ
Jan-09:
AF-KLM bought
a 25% stake in
new AZ for
€0.3bn
Dec-08:
CAI bought key
assets of AZ
for €1bn
AF-KLM’s offer was rejected due to the lack of
agreement with unions/government on 1.6k layoffs
Feb-13:
Convertible
bond issuance
for €150m
Mar-12:
Andrea Ragnetti
appointed
CEO replacing
Rocco Sabelli
Apr-13:
Gabriele
Del Torchio
appointed CEO
Feb-13:
Resignation
of the CEO
Andrea Ragnetti
Nov-13:
Approval of
the Industrial
Plan revision
Jul-13:
Presentation
of the
Industrial Plan
2013–2016
Dec-13:
Poste invested
€75m in
a €300m
capital increase
Both transactions failed in 2H12
Dec-09:
Codeshare
agreement
between Alitalia
and Etihad
Jan-12:
Negotiations
with Blue
Panorama and
Wind Jet
4
Alitalia Key Figures From 2009 to 2013 Alitalia reported losses that made the Net Equity shrink and the Net Debt increase to more than
€900m. These negative results have been driven by lower traffic and high rents.
Revenues (€m)
EBITDAR (€m) and EBITDAR Margin (%)
Net Income (€m)
Net Equity (€m)
Net Debt (€m) and Net Debt / EBITDA (x)
Passengers (m) and Market Share (%)
2,827 3,225 3,478 3,594 3,406
2009A 2010A 2011A 2012A 2013A
114
334
448 398
244
4%
10% 13%
11%
7%
2009A 2010A 2011A 2012A 2013A
(327)
(168)(69)
(280)
(569)
2009A 2010A 2011A 2012A 2013A
723
548 479
201
(27)
2009A 2010A 2011A 2012A 2013A
847 839 854
1,029
936
6.7x
3.8x
9.5x
2009A 2010A 2011A 2012A 2013A
21.8
23.424.6
23.822.7
23.9% 23.8% 23.6%
22.6%
21.7%
2009A 2010A 2011A 2012A 2013A
Growing top line – +5% CAGR
Declining marginality
Negative return
Cumulated capital erosion
Debt expansion
Volatile PAX carried
n.m.(1) n.m.(1)
Sources: Alitalia annual reports.
Note: (1) 2009A and 2013A EBITDA equals to (€54m) and (€138m), respectively.
5
Etihad (EY) Summary Overview
The Birth of the “New” Alitalia
Etihad Airways began its operations in 2003
From its Abu Dhabi hub Etihad flies to ca. 110 passenger and cargo destinations in the Middle East, Africa,
Europe, Asia, Australia and the Americas. In 2013:
– Carried 11.5 million passengers
– Generated ca. €4.6 billion revenues
The airline has a fleet of 102 Airbus and Boeing aircraft, and more than 210 aircraft on firm order
Holds equity investments in a number of European and Asian Airlines
The Crew The Hub Abu Dhabi International
Airport
The Fleet
Source: Companies press releases and websites, news articles.
6
Snapshot on Alitalia and Etihad: Side by Side
Despite a smaller workforce and fleet, Etihad has been able to achieve ca.€4.6bn revenue covering more destination than
Alitalia.
FLEET
137
86 Mid-range
22 Long-range
20 Regional
9 Air One
Smart Carrier
Fleet Age Average
4.9 years
FLEET
102
28 Mid-range
10 Cargo airplanes
Fleet Age Average
6.5 years
EMPLOYEES
7,900 DESTINATIONS
96
EMPLOYEES
14,000 DESTINATIONS
103
REVENUES
3,406 € million
REVENUES
4,573 € million
Sources: 2013 annual reports, Companies press releases and websites, news articles.
206 aircraft
to be
delivered
by 2015 (of
which 52%
long-range
and 47%
mid-range)
64 Long-range
done
7
Etihad: the Right Partner
1st Class Service Provider
Proven M&A Track Record
40% stake 49% stake
10.5% stake
3% stake
24% stake
Complementarity with AZ
Solid and Supportive
Shareholders
Expected High Growth
Minority Stake Acquisition
Sources: Companies press releases and websites, news articles.
Selected Recent Awards
Airline Market Leadership ‘14
M. East’s Leading Airline ‘14
Best Economy Class ‘14
World’s Leading Airline ‘13
Airline of the Year ’13
World Leading First Class ‘13
8
Key Stakeholders
Lending Banks
European Airlines Public Stakeholders and Unions
Sources: News articles.
Largest Shareholders Customers
Suppliers
done
9
Invo
lve
d
Pa
rtie
s
New Partner Shareholders Lending Banks
% of Total Transaction Value
32% 13% 4% 17% 34% 17% 100%
Transaction Overview On 8 August 2014, Etihad acquired a 49% stake in Alitalia. The transaction also envisaged a capital commitment by
existing and new shareholders, debt restructuring and new financing, resulting in a ca. €1.8 billion total transaction value.
Sources: Companies press releases and websites.
The total announced
investment amounts to ca.
€1.8bn and comprises the
following:
– Etihad’s investment of
€560m through a
combination of equity
injections, asset
purchases and other
funding arrangements
– Existing and new core
shareholders
contribution with a
capital increase of up to
€300m (€225m in
equity and €75m in
quasi-equity)
– Current lending
institutions restructured
up to €598m and also
committed to provide
new loan facilities for
€300m
The Process in Pics
Negotiation with Unions
Press Conference
Signing of the Agreement
€560m
€1,758m
560
785
560
860
1,458 €225m
€75m€300m
€598m
€300m
EtihadInvestment
Equity Quasi-equity
CapitalIncrease
DebtRestructuring
NewLoan
TransactionValue
EquityPurchase
€388m
HeathrowSlots€60m
75%AZ Loyalty
€113m
done
10
Transaction Structure and Etihad’s Key Asks
Personnel Layoff
2,251 employees
49%
Investment: €560m,
of which €387.5m to
purchase equity
Bank Debt to be Written-off
€560m
MidCo
51%
HoldCo
Others
Involved Lending Banks
Sources: Companies press releases and websites, news articles.
For the purpose of the
transaction, current Alitalia
CAI (“OldCo”) will contribute
all Alitalia’s operating assets
into NewCo, a subsidiary
controlled through MidCo
– Both NewCo and MidCo
are newly incorporated
companies
– The outstanding financial
debt not related to the fleet
will remain in OldCo
Fleet Reduction
11 Airbus 320
Key Asks from Etihad
Post-Deal Alitalia Shareholding
NewCo
done
11
Alitalia (NewCo) Renewed Board of Directors
Silvano Cassano
CEO
Alitalia and Etihad
Luca Cordero di
Montezemolo
Chairman
Alitalia MidCo
James Hogan
Vice-Chairman
Etihad
Giovanni Bisignani
Director
Etihad
Jean Pierre Mustier
Director
UniCredit
Board Member Name
Role
Reference Shareholder
Antonella Mansi
Director
MPS
Paolo Colombo
Director
Intesa SanPaolo
Roberto Colaninno
Director
IMMSI
James Rigney
Director
Etihad
NewCo
Sources: News articles.
Legend
12
Mar-14: Full due
diligence by Etihad, with
management meetings,
including at operational
level, site visits and
opening of the virtual
data room
Jan-14: Existing lenders
extend new financing
lines to Alitalia
Dec-13: Preliminary due
diligence undertaken by
Etihad to assess
feasibility of the
partnership
Dec-13: €300mn capital
increase fully subscribed
by existing and new
shareholders, including
Poste Italiane (€75mn)
Aug-13: Initial contacts
between Etihad and
Alitalia and discussions
around a potential
strategic partnership
Process Timeline
Timeline of Key Milestones and Next Steps
Sources: Companies press releases and websites, news articles.
dd-mmm-yy dd-mmm-yy Achieved Milestone Next Step
31-Dec-14: Envisaged
closing date for the
transaction
14-Nov-14: EU
Commission clears
Etihad's acquisition
requesting Alitalia to give
up airport slots on the
Rome-Belgrade route
8-Aug-14: Signing and
announcement of the
transaction, with a total
investment value of ca.
€1.8bn
Apr / Aug-14:
Negotiation phase
between Alitalia and
Etihad to fully define the
structure of the
transaction and the form
of investment
Apr-14: At the end of the
due diligence phase,
Letter of Interest from
Etihad confirming the
willingness to pursue
a transaction
The completion of the equity investment by Etihad remains subject to completion by Alitalia and its key private and public
stakeholders of certain conditions precedent agreed with Etihad.
done
13
The Role of Thanks to its longstanding execution experience and on-the-ground presence, Citi provided investment banking services
in all the aspects of the transaction.
Citi acted as exclusive financial advisor to Alitalia in the entire transaction and all its related arrangements. In
particular, Citi:
Managed and coordinated the due diligence process and management meetings
Drove the negotiation and structuring discussions with Etihad
Advised Alitalia on the structure of the entire transaction and on the capital increase
Drove and coordinated the debt restructuring negotiations with the existing lenders
Facilitated the arrangement of the new financing package
Advised Alitalia in its discussions with the different constituencies, including the Italian government
Supported and presented Alitalia’s BoD meetings
Successful Track-Record of M&A Transactions in The Sector
Adviser to Poste Italiane for the
Alitalia's €300m capital
increase
€75m - 2013
Advisor to Alitalia in the
Selection of a Strategic Partner
2007/2008
Advisor to Alitalia in the
disposal of a 25% stake to Air
France
€323m - 2009
Advisor to Fintecna in the
Acquisition of a Controlling
Stake in Alitalia Servizi
2005
14
Dedicated Team to Citi assembled a uniquely qualified team with proven M&A, industry and on the ground presence both in Italy and globally
to advise and assist Alitalia in the execution of the process with Etihad.
Italian Speakers
Corporate and Investment Banking
EMEA Investment Banking
Gianmario Spissu
Associate
Italy Investment Banking
Enrico Prato
Vice President
EMEA Diversified Industrials
Italy M&A Coverage
Andrea Nappi
Managing Director
Head of Italy M&A
Giovanni Castaldo
Director
Italy Investment Banking
Alexander Setness
Director
EMEA Transportation London
Federico Polo
Analyst
EMEA Diversified Industrials
Project Oversight
Leopoldo Attolico
Managing Director
Co-Head of Italy Investment Banking
Senior Coverage
Luigi de Vecchi
Managing Director
Chairman of Continental Europe for Corporate
and Investment Banking
Munawar Noorani
Managing Director
Head of EMEA Aviation Banking
Aviation Banking Core M&A Execution Team
15
Plans and Future Expectations
The new-born Alitalia – Etihad Group is expected to grow significantly by 2019.
€560 Million
from Etihad to become
shareholder
Investment
Plan
211 Destinations
232 Airplanes
34 million Passengers per annum
32.500 Direct employees
2 hub Fiumicino
Abu Dhabi
10 New intercontinental
hauls in 5 years
25 Long- hauls from
Malpensa (from 11) 5 New long-hauls from
Fiumicino in 4 years
Key Figures of
the Deal
The Business
Plan
€300 Million
Capital increase
subscribed by
current
shareholders
€690 Million
from Etihad to invest
in fleet renewal
Sources: 2013 annual reports, Companies press releases and websites, news articles.
16
The New Network Leveraging on Etihad, Alitalia will implement its destinations network with additional flights from Abu Dhabi and 7 new
intercontinental flights.
New Intercontinental
Flights
7
Most Connected
Hauls
3
Departures
from Abu Dhabi
(Hub for Asia)
New Long Haul
Planes
7
Passengers
Served
23 million
Malpensa
More long-hauls flights
(from 11 to 25 per
week); re-launch of
Cargo activities
Linate
More international
flights, less national
Fiumicino
Hub for local flights
and feeder at both
national and
international level
San Francisco
Mexico City
Chicago New York
Rio de Janeiro
Santiago de Cile
Abu Dhabi
Peking
Shanghai
Seoul
Milan
Venice
Bologna
Rome
Catania
Destinations
105 26 national
61 international
18 intercontinental
Sources: 2013 annual reports, Companies press releases and websites, news articles.
17
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