Friday, March 7, 2008

Airline Mergers and Politics

According to an article in today's Wall Street Journal, the impending merger of Aitalia with Air France-KLM may rest on the outcome of Italy's upcoming national elections.  With the center-right set on maintaining Italian control of the capital-starved carrier, Air France-KLM's commitment to inject 3 billion euros into it may be for naught.  Analysts are predicting that should Air France-KLM choose to abandon the merger Aitalia would be unable to sustain itself.  Other national interests revolving around Italy's combative labor unions also threaten the deal.  Union leaders have warned that the merger will mean a reduced presence for Aitalia at the Malpensa airport near Milan along with other downsizing measures.  No comments were offered by any union on whether or not downsizing would be a more desirable option than complete collapse.

On the other side of the Atlantic, Canada's federal government is considering raising its foreign-ownership limits for airlines.  This move comes after ACE Aviation Holdings Inc. announced that it would sell its 75% ownership interest in Air Canada.  Like the United States, Canada limits foreign ownership in its airlines to 25% of voting shares and 49% of the equity.  Industry analysts and scholars have commented that such limits have had an adverse impact on a number of carriers.  In response, Canada may raise the voting shares ceiling to as high as 49%.  This would mirror the ownership caps in India and China, though still come short of Australia and New Zealand's rules which allow for 100% foreign ownership of carries which exclusively offer domestic service.

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