Board Of Directors Of Alitalia

19th Apr 1999

In today`s meeting the Board of Directors of Alitalia - Linee Aeree Italiane S.p.A. - has examined, among other subjects on the agenda, the trend forecast over the first half of 1999, which seems heavily influenced by the uncertain developments of the Balkans crisis, which are currently having a deep impact over the traffic level and the cost of raw materials.

In this respect, the heavy influence over the Company`s economic development was said to be ascribable to two more factors, on top of the Balkans crisis, namely:

* The negative start-up of the Malpensa hub operations and the continued marked criticality affecting the latter airport, which faced a growth in the level of passengers served by the integrated Linate-Malpensa airport system.More specifically, although such growth was higher than traffic decrease observed on the Rome Fiumicino airport, it was only marginally sufficient to offset the fall in the traffic of passengers from the Italian provinces as a whole, owing to the network inefficiency and the unbalanced position of Alitalia vis-à-vis that of its competitors operating at the Linate airport, which in turn directly stems from the provisional traffic arrangement of the Burlando Decree, as approved on 9 October 1998.

* Secondly, the considerably irregular traffic control system, which was affected by a delay rate ranging from 3.8% in January 1998 to 8.4% in December 1998, with a peak of 25.3% in March 1999.In addition, such delays were conducive to further consequential delays culminating in a full network delay rate of 40%.

In this context, the forecast pertaining to the January-June 1999 period points to a balanced no-profit/no-loss result as against a profit of 152 billion lire in 1998.


However, for the second half of 1999, the Board took stock of the initiatives launched by the Company including, among other things, a reduced increase in the formerly envisaged capacity levels over 1999 and, without excluding the likelihood of the continuation or worsening of current extraordinary events, confirmed its expected improvement of the Alitalia activity, considering the foreseeable settlement of the Balkans crisis and the expected growth in the efficiency of operations on the Malpensa hub, following the forthcoming enactment of the “Burlando Decree”, as was originally worded and as confirmed by the recent deed supplementing the 1992 Convention.

The results for the business year are indeed affected by the trend observed over the first semester, yet the net profit value is not expected to differ significantly from that of 1998, as a consequence of, among other things, the envisaged transfer of non-strategic stakes (in Equant and Galileo) with foreseeably beneficial effects worth more than 100 billion lire.

The foregoing developments, however, should not question the validity of the 1998-2001 Industrial Plan and, more specifically, the strategic choices and the profitability objectives set out for the next two-year period (Roe of around 15%), considering that the multi-hub system has already produced a 20% increase in the transit traffic as against the corresponding period of 1998.

As a matter of fact, the Board confirmed the strategic choices made by the Group and approved its regional activity enhancement schemes (i.e. the improvement of point-to-point services and the feeding of hubs serving medium to small sized markets by aircraft having a capacity below100 seats), so as to increase operations - via the introduction of 18 to 22 50-seat jet aircraft in The Fleet - in the network sectors which were temporarily weakened as a result of the concentration of Group`s efforts on Malpensa and in which it consequently had to face fierce competition.

Equally with reference to The Fleet development and in line with the need to seek for a better way of integrating the Group`s and KLM`s networks and operations, the Board was advised of the programme which is currently being drafted for replacing four B747s series 200 with five more efficient B747s series 400.

The Board further went on to examine the data relating to the traffic over the first quarter. As mentioned above, the January-March period was heavily influenced by uncertainties due to recent developments and, in any case, recent results clearly reflect the trend observed in relation to bookings in the April-June period, specifically as regards passengers from North-American.

More specifically, the Italian market grew by 7% over the first quarter (as against +11% over the full 1998 business year), and Alitalia increased its domestic market share by 3%. In terms of domestic sales the topmost results were reached in the Rome, Turin and Milan areas, while in terms of international sales the Malpensa hub ranked first.

On international markets, Alitalia`s performance was in line with that of its competitors, as a result of the acquisition of transit traffic segments fed through Malpensa, and confirmed the strategic validity of the new network despite the still visible criticality in the Malpensa operations. With a view to solving such criticality, the Board urged the intervention of the Malpensa airport management company SEA, and specifically of its shareholders.

Next, the Board took stock of the most recent development of the employee shareholding and confirmed the interest shown by the company for the enhancement of such initiative, which is among the cornerstones of the Group`s reorganisation and restructuring. The cohesive and whole-hearted participation of employees in such a development phase of the Airline is essential, given the currently difficult scenario marked by fierce competition.

Finally, the Board passed the proposed resolutions amending its articles of incorporation, as required by the Draghi Decree, as well as the resolutions pertaining to the enhancement of the employee shareholding and convened an extraordinary and ordinary Shareholders` Meeting on 24 May 1999 - in first call - or on 27 May 1999 - in second call. As part of the ordinary agenda, Shareholders will be entrusted with the appointment of a Director replacing Mr Alessandro Ovi who resigned in December 1998.



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