Alitalia Buyout Gripes From Ryanair Nosedive

(CN) - Europe's highest court upheld the 2008 sale of beleaguered airline Alitalia, despite bargain carrier Ryanair's objection that Italian authorities illegally meddled in the deal.

Italy's financially troubled airline had received nearly $400 million in loans from Italy in 2006 and eventually entered federal receivership.

Compagnia Aerea Italiana (CAI) bought portions of Alitalia and its assets for approximately $1.3 billion in 2008. That year, Ryanair and other economy air carriers brought objections to the European Commission about Italy's bailout and CAI's purchase of Alitalia.

Though the commission concluded that Italy's bailout constituted illegal state aid, it found that CAI had purchased Alitalia for fair market price. The agency ordered Italian authorities to recover the bailout money, and Ireland's bargain carrier sued to annul the decisions.

Ryanair argued that Alitalia's bailout and sale to CAI have harmed its business and market position. It said annulling the commission's decision would force a formal investigation into the matter, which the commission negligently failed to do in the first place.

CAI's low-fare carrier Air One became the second-largest airline for flights between Italy and other EU countries after buy Alitalia.

Last year the General Court rejected Ryanair's arguments that the commission had carried out an insufficient or incomplete examination at the preliminary examination phase. The commission was satisfied that Alitalia's sale would be for market price, the court noted, dismissing Ryanair's complaint.

On appeal, the Irish carrier argued that the lower court failed to adequately examine that CAI's purchase of Alitalia had harmed its business. It also contested the court's finding that CAI is not the economic successor of Alitalia since CAI purchased half of Alitalia's 180 airplanes and the passenger portion of its business only.

The Luxembourg-based high court shot Ryanair's appeal down entirely Thursday, finding that the commission had adequately examined both concessions that the Italian government gave CAI and the more than 60 bids for Alitalia prior to CAI's purchase.

EU law grants the commission power to accept a member state's proposed remedy without launching a full investigation, the ruling continues.

"It should be noted that decisions adopted without initiating the formal investigation procedure are acts which are brought into being on conclusion of a brief review, which is conducted within a narrow time frame and, more often than not, in the context of a dialogue exclusive to the commission and the member state concerned," the justices wrote. "In accordance with the objective of the commission and its duty of sound administration, the commission may, amongst other things, engage in dialogue with the notifying state or with third parties in an endeavor to overcome, during the preliminary procedure, any difficulties encountered. However, as the General Court noted, that power presupposes that the commission may adjust its position according to the results of the dialogue engaged in, without that adjustment having to be interpreted, a priori, as establishing the existence of serious difficulties."

Ryanair never disputed that the Italian government placed a focus on the price of Alitalia by ensuring that the winning bid came in at market price or more. Instead, the Irish carrier argued that a secondary focus on continuity of service artificially reduced Alitalia's market price.

The high court noted that Ryanair never questioned the General Court's holding that "a continuity of service obligation did not necessarily imply the imposition of a public service obligation on the operator whose bid was accepted."

"In any event, Ryanair did not adduce evidence before the General Court that the need to ensure continuity of service of air transport in the medium term resulted in a reduction of the price of Alitalia group assets below the market price," the justices added. "The General Court was, therefore, correct to reject that argument."

They continued: "Ryanair's argument that the General Court distorted the evidence must be rejected. Assuming that, as Ryanair claims, only one of the 60 bids submitted related to Alitalia's main activity as a whole and the continuity of service obligation, that fact does not in itself establish that that obligation was a public service obligation. In those circumstances, the argument that, if a public service obligation had been imposed, the commission would have had the duty to investigate the absence of aid and the General Court should have found fault with the absence of such an examination, must be held to be ineffective."

The ruling concludes by refusing to make CAI repay Italy's bailout of Alitalia, as Alitalia's economic successor. The Irish airline argued that the General Court distorted evidence to find that CAI did not purchase enough of Alitalia to be considered the successor.

"The commission found that the bid submitted by CAI concerned only the passenger air transport business," the ruling states. "CAI would take over only certain assets relating thereto. Moreover, it is apparent that CAI's bid covered all the timetable slots corresponding to the assets purchased in the procedure. It does not therefore follow that CAI's bid covered 100 percent use of Alitalia's timetable slots for passenger transport. Secondly, it is apparent that that bid concerned approximately one half of the 180 Alitalia aircraft and that the new company will operate only part of the corresponding timetable slots.

"It follows from the foregoing that the General Court did not distort the evidence which was submitted to it," the court concluded.

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