Presentation at Luiss University 1 December 2014

Alitalia – Etihad Transaction Case Study (AZ) Summary Overview

The Birth of the “New” Alitalia

 Alitalia – Compagnia Aerea Italiana (“CAI” or the “Company”) is a private company that started its operations in January 2009  The Company currently flies to 103 destinations, of which 26 in and 77 for the rest of the world, 186 routes and more than 4,700 weekly flights. In 2013: – Carried 23 million passengers – Generated €3.4 billion revenues  One of the youngest fleets in the world with an average age of 6.5 years  Alitalia is a member of the SkyTeam global alliance and, since 2010, forms part with Air France-KLM and Delta Air Lines of the main air transport Transatlantic Joint Venture

The Hub The Fleet The Crew Fiumicino Airport

Source: Companies press releases and websites, news articles.

1 Alitalia: A Long Story of Difficulties Since 2000 Alitalia has cumulated negative results in excess of ca.€9.0bn, including ca.€3.0bn of liquidation costs related to Alitalia – Linee Aeree Italiane.

Alitalia – Linee Aeree Italiane Alitalia – Compagnia Aerea Italiana

Net Income Evolution (€m) Net Income Evolution (€m)

93

(69) (168) (168) (256) (280) (327)

(512) (495) (569) (626)

(844) (907) (1,000)(1)

2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008E 2009A 2010A 2011A 2012A 2013A

Cumulated Net Income (€m) Cumulated Net Income (€m)

(256) (327) (494) (1,163) (1,070) (1,582) (563) (843) (2,426) (2,594) (1,411) (3,220) (3,715) (4,715) 2009A 2010A 2011A 2012A 2013A

2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008E

 In the period 2000 – 2008E, Alitalia – Linee Aeree Italiane  In the period 2009 – 2013, Alitalia – Compagnia Aerea Italiana posted a cumulated net loss of ca.€4.7bn posted a cumulated net loss of ca.€1.4bn  According to Italian press news, the estimated liquidation cost amounted to ca.€3.0bn(2)

Sources: Alitalia annual reports. Note: (1) As estimated in the report “Alitalia – La privatizzazione infinita”; financial accounts FY2008 not available since on September 2008 Alitalia – Linee Aeree Italiane was declared insolvent and subject to a special bankruptcy procedure termed extraordinary administration (“amministrazione straordinaria”). (2) Average of two Italian press news, namely “Ecco chi ha pagato il conto. Salvataggio da 3,2 miliardi” (Corriere della Sera, 8 August 2013) and 2 “Quanto costa chiudere Alitalia. In totale lo Stato pagherebbe direttamente circa 2,9 miliardi” (lavoce.info, 16 September 2008). Alitalia: History Overview

Established as State-owned company, Alitalia grew in the early decades up to face the first difficulties following the deregulations of the sector and the higher competition in the domestic market

2000: Following the 2003-2004: Proposed a 1946: 1957: Malpensa failure to new business plan Incorporation of Alitalia merged 1970-1990: All 2000-2003: become an (Alitalia daily lost €1m). 2007: AF – KLM Alitalia with LAI and airlines except Global drop in air international hub(1), Italian State provided a selected as Aereolinee became Alitalia Alitalia developed traffic. Strategic KLM decided not to €400m bridge financing potential Italiane Linee Aeree industrial plans to refocus on proceed the alliance and disposed a 12.3% candidate to take Internazionali Italiane face the oil crisis domestic hauls with AZ(2) stake(3) over Alitalia

2001: Alitalia entered End of 2006: 1968: Awarded as 7th 1996: Italian state 2003: Business plan 1950: Alitalia SkyTeam, joining Air airline globally and 3rd disposed 21% proposal for Government failure in acquired Lati and France, Delta Air in Europe, and stake to employees recapitalization and selling a 39.9% stake in started serving also Lines, Korean Air, became the first and listed a 15% disposal of the stake Alitalia, with all the 11 LatAm (4) Aeromexico and CSA European airline to stake held by the Government potential buyers Czech Airlines have an all-jet fleet withdrawing their bids

1946 – 1970 1970 – 1990 1990 – 2000 2000 – 2006 2007

Second and third Deregulation / Attempts to relaunch the business through several Early stage growth First privatisation privatisation attempts Oil Crisis industrial plans (failed) Source: Companies press releases and websites, news articles. Notes: (1) Scarcity of connections (rails sand highways) to the city of Milan and other main cities located in the Northern part of Italy. (2) Namely Fiumicino, Linate, Malpensa. (3) Italian State remained with a 49.7% stake. (4) Italian State remained with a 64% stake. 3 Alitalia: Recent Developments

Over the 2008–2013 period, the new Alitalia lived a tough economical situation due to both internal and external factors

AF-KLM’s offer was rejected due to the lack of agreement with unions/government on 1.6k layoffs

Jul-13: Dec-13: Dec-09: Mar-12: Feb-13: Presentation Poste invested May-08: Dec-08: Codeshare Andrea Ragnetti Resignation of the €75m in AF-KLM CAI bought key agreement appointed of the CEO Industrial Plan a €300m CEO replacing proposed assets of AZ between Alitalia Andrea Ragnetti 2013–2016 capital increase merger with AZ for €1bn and Etihad Rocco Sabelli

Nov-13: Aug-08: Jan-09: Jan-12: Feb-13: Apr-13: Approval of Creation of AF-KLM bought Negotiations Convertible Gabriele the Industrial CAI, investor a 25% stake in with Blue bond issuance Del Torchio Plan revision consortium led new AZ for Panorama and for €150m appointed CEO by R. Colaninno €0.3bn

Both transactions failed in 2H12

Source: Companies press releases and websites, news articles.

4 Alitalia Key Figures From 2009 to 2013 Alitalia reported losses that made the Net Equity shrink and the Net Debt increase to more than €900m. These negative results have been driven by lower traffic and high rents. Revenues (€m) Net Equity (€m) Growing top line – +5% CAGR Cumulated capital erosion 723 3,478 3,594 548 3,225 3,406 479 2,827 201

(27) 2009A 2010A 2011A 2012A 2013A 2009A 2010A 2011A 2012A 2013A

EBITDAR (€m) and EBITDAR Margin (%) Net Debt (€m) and Net Debt / EBITDA (x) Declining marginality Debt expansion

448 1,029 398 936 334 847 839 854 244 9.5x 13% 114 10% 11% 6.7x

7% (1) (1) 4% n.m. 3.8x n.m. 2009A 2010A 2011A 2012A 2013A 2009A 2010A 2011A 2012A 2013A

Net Income (€m) Passengers (m) and Market Share (%) Negative return Volatile PAX carried

23.9% 23.8% 23.6% 22.6% (69) 21.7% (168) (280) 24.6 (327) 23.4 23.8 22.7 21.8 (569)

2009A 2010A 2011A 2012A 2013A 2009A 2010A 2011A 2012A 2013A Sources: Alitalia annual reports. Note: (1) 2009A and 2013A EBITDA equals to (€54m) and (€138m), respectively. 5 Etihad (EY) Summary Overview

The Birth of the “New” Alitalia

 Etihad Airways began its operations in 2003  From its Abu Dhabi hub Etihad flies to ca. 110 passenger and cargo destinations in the Middle East, Africa, Europe, Asia, Australia and the Americas. In 2013:

– Carried 11.5 million passengers – Generated ca. €4.6 billion revenues

 The airline has a fleet of 102 Airbus and Boeing aircraft, and more than 210 aircraft on firm order  Holds equity investments in a number of European and Asian Airlines

The Hub The Fleet The Crew Abu Dhabi International Airport Source: Companies press releases and websites, news articles.

6 Snapshot on Alitalia and Etihad: Side by Side done Despite a smaller workforce and fleet, Etihad has been able to achieve ca.€4.6bn revenue covering more destination than Alitalia.

FLEET FLEET 137 102

Fleet Age Average

86 6.5 Fleet Age Average 28 Mid-range years 4.9 Mid-range years 22 64 Long-range Long-range REVENUES REVENUES 4,573 € million 20 3,406 10 Regional € million Cargo airplanes

9 206 aircraft to be Smart Carrier delivered EMPLOYEES EMPLOYEES by 2015 (of which 52% 14,000 7,900 long-range DESTINATIONS DESTINATIONS and 47% 103 96 mid-range)

Sources: 2013 annual reports, Companies press releases and websites, news articles.

7 Etihad: the Right Partner

40% stake 49% stake

10.5% stake 24% stake

3% stake Minority Stake Acquisition Complementarity with AZ Proven M&A Track Record

Selected Recent Awards  Airline Market Leadership ‘14  M. East’s Leading Airline ‘14  Best Economy Class ‘14  World’s Leading Airline ‘13  Airline of the Year ’13  World Leading First Class ‘13 Solid and Supportive Shareholders Expected High Growth 1st Class Service Provider

Sources: Companies press releases and websites, news articles.

8 Key Stakeholders done

Lending Banks Customers Largest Shareholders

European Airlines Suppliers Public Stakeholders and Unions

Sources: News articles.

9  – – – following: € investment amounts to ca. The total announced 1.8bn € newloan facilities for committed to provide up to institutions restructured Current lending quasi equity and € capitalincrease of up to contribution with a shareholders Existingand newcore funding arrangements purchases and other injections, asset combination of equity € Etihad’sinvestment of 300m 300m 560m

and comprises the - € equity) 598m

( through a € 225m € 75m

and also

in

in

existing and newshareholders, debt restructuring and newfinancing, resulting in a ca. On 8 August 2014, Etihad acquired a 49% stake in Alitalia. The transaction also envisaged a capital commitment by Transaction Overview Transaction 10 websites.andreleases pressCompanies Sources:

Involved

Parties Purchase € Equity 388m % of Total Transaction Value New New Partner Investment € Etihad 32% 560m

€ Equity 13% 225m 560 Heathrow AZLoyalty

€ Slots

€ 60m 75% 113m

Shareholders Quasi- equity € 4% 75m 785

Increase 17% Capital € 300m 560

Restructuring 34% € Lending Banks Debt 598m 860

17% €

Loan 300m New 1,458 1,458

Transaction € € 100% 1,758m Value 1.8 1.8 billion total transaction value.

Signingof the Agreement The Process Process Pics The in Negotiation with Unions Press Conference

done

Transaction Structure and Etihad’s Key Asks done

Post-Deal Alitalia Shareholding

 For the purpose of the transaction, current Alitalia CAI (“OldCo”) will contribute all Alitalia’s operating assets into NewCo, a subsidiary HoldCo controlled through MidCo – Both NewCo and MidCo 49% MidCo are newly incorporated NewCo Investment: €560m, companies 51% of which €387.5m to Others – The outstanding financial purchase equity debt not related to the fleet will remain in OldCo

Key Asks from Etihad

Personnel Layoff Bank Debt to be Written-off 2,251 employees €560m

Involved Lending Banks Fleet Reduction 11 Airbus 320

Sources: Companies press releases and websites, news articles.

11 Alitalia (NewCo) Renewed Board of Directors

Giovanni Bisignani Director James Hogan Etihad James Rigney Vice-Chairman Director Etihad Etihad

Luca Cordero di Silvano Cassano Montezemolo CEO Chairman Alitalia and Etihad Alitalia MidCo NewCo

Roberto Colaninno Jean Pierre Mustier Director Director IMMSI UniCredit Paolo Colombo Antonella Mansi Director Director Intesa SanPaolo MPS

Legend Board Member Name Role Reference Shareholder Sources: News articles.

12 Process Timeline done The completion of the equity investment by Etihad remains subject to completion by Alitalia and its key private and public stakeholders of certain conditions precedent agreed with Etihad. Timeline of Key Milestones and Next Steps

 Aug-13: Initial contacts  Dec-13: Preliminary due  Mar-14: Full due  Apr / Aug-14:  14-Nov-14: EU between Etihad and diligence undertaken by diligence by Etihad, with Negotiation phase Commission clears Alitalia and discussions Etihad to assess management meetings, between Alitalia and Etihad's acquisition around a potential feasibility of the including at operational Etihad to fully define the requesting Alitalia to give strategic partnership partnership level, site visits and structure of the up airport slots on the opening of the virtual transaction and the form -Belgrade route data room of investment

 Dec-13: €300mn capital  Jan-14: Existing lenders  Apr-14: At the end of the  8-Aug-14: Signing and  31-Dec-14: Envisaged increase fully subscribed extend new financing due diligence phase, announcement of the closing date for the by existing and new lines to Alitalia Letter of Interest from transaction, with a total transaction shareholders, including Etihad confirming the investment value of ca. Poste Italiane (€75mn) willingness to pursue €1.8bn a transaction

dd-mmm-yy Achieved Milestone dd-mmm-yy Next Step

Sources: Companies press releases and websites, news articles.

13 The Role of Thanks to its longstanding execution experience and on-the-ground presence, Citi provided investment banking services in all the aspects of the transaction.

 Citi acted as exclusive financial advisor to Alitalia in the entire transaction and all its related arrangements. In particular, Citi:  Managed and coordinated the due diligence process and management meetings  Drove the negotiation and structuring discussions with Etihad  Advised Alitalia on the structure of the entire transaction and on the capital increase  Drove and coordinated the debt restructuring negotiations with the existing lenders  Facilitated the arrangement of the new financing package  Advised Alitalia in its discussions with the different constituencies, including the Italian government  Supported and presented Alitalia’s BoD meetings

Successful Track-Record of M&A Transactions in The Sector

Adviser to Poste Italiane for the Advisor to Alitalia in the Advisor to Alitalia in the Advisor to Fintecna in the Alitalia's €300m capital disposal of a 25% stake to Air Selection of a Strategic Partner Acquisition of a Controlling increase France Stake in Alitalia Servizi

€75m - 2013 €323m - 2009 2007/2008 2005

14 Dedicated Team to Citi assembled a uniquely qualified team with proven M&A, industry and on the ground presence both in Italy and globally to advise and assist Alitalia in the execution of the process with Etihad.

Project Oversight Senior Coverage

Leopoldo Attolico Luigi de Vecchi Managing Director Managing Director Co-Head of Italy Investment Banking Chairman of Continental Europe for Corporate and Investment Banking

Corporate and Investment Banking

Core M&A Execution Team Aviation Banking Munawar Noorani Italy M&A Coverage EMEA Investment Banking Managing Director Andrea Nappi Alexander Setness Head of EMEA Aviation Banking Managing Director Director Head of Italy M&A EMEA Transportation London

Giovanni Castaldo Enrico Prato Director Vice President Italy Investment Banking EMEA Diversified Industrials

Gianmario Spissu Federico Polo Associate Analyst Italy Investment Banking EMEA Diversified Industrials

Italian Speakers

15 Plans and Future Expectations The new-born Alitalia – Etihad Group is expected to grow significantly by 2019.

Key Figures of the Deal €300 €560 €690 211 Million Million Investment Capital increase Million Destinations from Etihad to become Plan subscribed by shareholder from Etihad to invest current in fleet renewal shareholders 232 Airplanes

34 million 25 The Business Passengers per annum Long- hauls from Plan Malpensa (from 11) 5 New long-hauls from 32.500 Fiumicino in 4 years Direct employees 10 New intercontinental hauls in 5 years 2 hub Fiumicino Abu Dhabi

Sources: 2013 annual reports, Companies press releases and websites, news articles.

16 The New Network Leveraging on Etihad, Alitalia will implement its destinations network with additional flights from Abu Dhabi and 7 new intercontinental flights.

New Intercontinental Flights 7

Most Connected Hauls New York Peking San Francisco Chicago Seoul 3 Abu Dhabi Shanghai Mexico City Departures from Abu Dhabi (Hub for Asia) Milan Venice New Long Haul Passengers Santiago de Cile Planes Served Bologna 7 23 million Rome

Destinations Malpensa Linate Fiumicino 105 More long-hauls flights More international Hub for local flights (from 11 to 25 per flights, less national and feeder at both Catania 26 national week); re-launch of national and 61 international Cargo activities international level 18 intercontinental

Sources: 2013 annual reports, Companies press releases and websites, news articles.

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