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Flying the familiar skies?

Buyout firm Texas Pacific Group could be setting its sights on Italian national carrier Alitalia—and their experience in distressed airlines could make for a smooth flight. By Aaron Lovell.

Private equity firms have oftentimes found success in sticking to what they know, be it media investments, infrastructure or the healthcare sector.

David Bonderman’s firm, Fort Worth, Texas-based Texas Pacific Group, has employed a diversified strategy over the past 15 years. But, according to Italian press reports, the firm is seeing if it might be able to work its magic in the airline industry again.

Bonderman: showing interest in Alitalia

Rumors on the continent are suggesting Bonderman and Texas Pacific might go after Italian national airline Alitalia—if the government decides to privatise the troubled carrier.

“Alitalia is a company that could be very interesting, I can’t deny that,” Bonderman told Italian newspaper Il Sole, adding that any advances towards the company would be made after the government has decided whether or not to take the airline private.

The airline has had a bumpy ride recently. Alitalia reported a loss of €157 million ($198 million) before taxes for the first quarter of 2006, compared with €141 million in the same quarter of 2005. The airline saw total passengers drop 2.3 percent over the same quarter last year. While its international business was up 4 percent, both intercontinental and domestic business saw decreases.

Texas Pacific has done well with the distressed airline play in the past. As the firm began making investments in a number of industries in the early 1990s, it made a bet on Continental Airlines via its Air Partners vehicle.

At the time of the deal in 1993, Continental had largely been written. It had gone bankrupt—twice. It reportedly hadn’t made a profit since 1978 and was last in on-time arrivals. 

Air Partners invested $66 million in the airline and led a $450 million recapitalisation. Five years later, Bonderman sold a controlling stake in the airline to Northwest Airlines for $519 million in cash and stock—allowing the investors to walk away with a cool $718 million and a pedigree in the rough-and-tumble world of airline investing.
 
In Europe, Texas Pacific was able to carve out a niche with an investment in Ryanair, acquiring 20 percent of the low-cost carrier in 1997. The deal gave Texas Pacific access to the European passenger air business just as the markets were opening up—the cash injection, which included many of the investors in the main Texas Pacific fund, came as the airline was looking to purchase new planes.

But Bonderman doesn’t just buy any ailing airline. The firm was linked to possible acquisitions like US Airways and Air Canada, but it ultimately stayed away when pricing got too high.

There are still a number of factors in play regarding a possible Alitalia deal, but with a blue-chip investor like Bonderman publicly talking about it at this stage in the game, it could be one to watch.