VZCZCXRO7509
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMIL #0015/01 0321739
ZNR UUUUU ZZH
P 011739Z FEB 08
FM AMCONSUL MILAN
TO RUEHC/SECSTATE WASHDC PRIORITY 1416
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHRO/AMEMBASSY ROME 8313
RUEHFL/AMCONSUL FLORENCE 0151
RUEHNP/AMCONSUL NAPLES 0149
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RHEHNSC/NSC WASHDC
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 02 MILAN 000015 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/WE, EB/TRA/OTP, EB/TRA/AN, EB/TRA DAS BYERLY 
PLEASE PASS TO TRANSPORTATION AND FAA 
 
E.O. 12958: N/A 
TAGS: EAIR ECON ELAB ETRD IT KPRV
SUBJECT: AND NOW FOR SOMETHING COMPLETELY DIFFERENT: 
DE-HUBBING MILAN'S MALPENSA 
 
REF: 07 MILAN 273 
 
MILAN 00000015  001.2 OF 002 
 
 
------- 
Summary 
------- 
 
¶1.  (SBU) Alitalia cuts at Milan's Malpensa go into full 
force as of April 1, 2008.  Flight reductions of over 25 
percent of Malpensa's traffic and more than one third of its 
intercontinental routes will have an immediate, significant 
impact on the region's economy starting with job cuts of at 
least 1,300.  Future prospects for rebuilding service are 
somewhat promising but will take years.  Entrenched union 
interests and a lack of political will to make difficult 
decisions has led to the current situation: a drastic cutback 
of economically valuable and growing intercontinental routes 
at Malpensa to keep Alitalia out of bankruptcy long enough 
for it to be sold.  End summary. 
 
---------------- 
Immediate Impact 
---------------- 
 
¶2.  (SBU) On January 31, Alitalia gave final notice to 
Assoclearance (Italy's flight clearance agency) to cancel 793 
weekly flights from Milan's Malpensa airport from April 1, 
¶2008.  This represents sixty-four percent of Alitalia's 
current 1,238 flights from Malpensa.  Before the cuts, 
Alitalia accounted for over half of Malpensa's traffic. 
Media reports quote passenger losses for Malpensa between 6.5 
and 8 million per year.  SEA, the management company for 
Malpensa and Linate airports, did not renew the contracts of 
230 workers as of January 31 and will not renew another 700 
when their contracts are up at the end of March.  SEA expects 
cuts to reach a total of 1,300 over the next few months. 
This first tranche will consist of employees eligible for 
retirement or other temporary government assistance.  Future 
cuts will be more painful.  Unions estimate up to 4,000 job 
losses total, while the Lombardy Region claims 7,000 in the 
greater Milan area if SEA, Alitalia, taxi and hotel workers 
are all taken into account.  Both near and longer term 
financial losses to area businesses and commercial fairs due 
to the lack of intercontinental connections are difficult to 
calculate, though observers agree they will be significant. 
The immediate impact on U.S. travelers is the loss of direct 
flights to/from Boston, Chicago, Miami and Newark. 
 
--------------- 
Two-Year Tumble 
--------------- 
 
¶3.  (SBU) SEA President Giuseppe Bonomi was relatively upbeat 
in discussions with the Consul General, noting SEA was 
mounting an aggressive effort to attract other carriers and 
continuing airport infrastructure upgrades.  However, he was 
clear that Malpensa's development was based on the hub model 
and would need to find a new majority carrier.  While hopeful 
this could be accomplished in the medium term because of 
interest from Italian carrier AirOne and a lack of excess 
capacity throughout Europe, he acknowledged the next two 
years, at a minimum, would be abysmal.  The tight markets for 
airplane purchases could further delay the ramp up of another 
carrier at Malpensa, especially for long haul routes.  A two 
to three year lack of direct intercontinental connectivity 
could significantly alter business patterns in Northern 
Italy, creating a drag on the local and regional economies. 
 
---------------- 
Future Prospects 
---------------- 
 
¶4.  (SBU) SEA will reportedly sue Alitalia for damages of one 
billion euros stemming from infrastructure improvements 
requested by Alitalia to support its Malpensa hub operations 
(requested as recently as June 2007, a week before the 
decision to drastically cut flights at Malpensa was made 
public).  AirOne is appealing the GOI's decision to pursue 
exclusive negotiations with Air France with the Regional 
Court of Lazio.  Major financial players such as Banca 
Intesa-San Paolo and wealthy area businessmen have publicly 
 
MILAN 00000015  002.2 OF 002 
 
 
expressed willingness to finance an AirOne expansion at 
Malpensa.  SEA will push for government assistance to 
liberalize air service agreements with other countries to 
allow additional flights on popular routes such as Dubai. 
SEA sees great potential in increased cargo operations, but 
this is limited by Italian Customs staffing patterns (only 
open during normal business hours 5 days a week).  American 
Airlines is expected to pick up Alitalia's vacated flight to 
Newark. 
 
------------------------------------- 
Comment: Costs of Government Inaction 
------------------------------------- 
 
¶5.  (SBU) Alitalia's dire financial straits have been evident 
for years.  Alitalia launched numerous "rescue plans" over 
the years, with all but the most recent calling for expanded 
service and an increased focus on the Malpensa hub. 
Entrenched union interests and a lack of political will to 
make difficult decisions has led to the current situation: a 
drastic cutback of economically valuable and growing routes 
(Alitalia's Malpensa intercontinental flight passengers grew 
nine percent from 2006 to 2007) to keep Alitalia out of 
bankruptcy long enough for it to be sold.  End comment. 
WEYGANDT