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Transport

Italy’s transport sector has been relatively fast-growing and, during the period from 1980 to 1996, grew at more than twice the rate of industrial production growth. The expansion of the transport sector was largely the result of trade integration with European markets. Historically, motorways and railways have been controlled, directly and indirectly, by the Government, and railways in particular have posted large financial losses. In recent years many of these enterprises have been restructured in order to place them on a sounder financial footing and/or privatized.

Roadways are the dominant mode of transportation in Italy. The road network includes, among others, municipal roads that are managed and maintained by local authorities, roads outside municipal areas that are managed and maintained by the State Road Board (“ANAS”) and a system of toll highways that in part are managed and maintained by several concessionaries, the largest of which is controlled by Autostrade S.p.A. (“Autostrade”), which was privatized in 1999. Autostrade manages approximately 3,400 kilometers of the approximately 6,600 kilometer system of motorways, under several concessions granted by ANAS. Toll motorways represent approximately 86.3 per cent of the total motorway network.

Italy’s railway network is small in relation to its population and land area. Approximately 30 per cent of the network carries 80 per cent of the traffic, resulting in congestion and under-utilization of large parts of the network. There are approximately 22,200 kilometers of railroad track, of which a large majority are controlled by State-owned railways, with the remainder controlled by private firms operating under concession from the Government. In 2008, Italian railways carried more than 28.1 billion tons-km of freight (an increase of 0.3 per cent compared to 2007) and recorded 45.8 billion passengers-km. The Government historically has provided substantial operating subsidies to the State-owned railroads, making passenger tickets less expensive than for most European railroads. In addition, the railway system historically has suffered from overstaffing, high costs and inadequate infrastructure. However, the Government has been restructuring the Italian railway system to improve its efficiency, expand the network and upgrade existing infrastructure.

In 1992, the Italian State railway company was converted from a public law entity into a commercial State-owned corporation, Ferrovie dello Stato S.p.A. or “FS,” with greater autonomy over investment, decision-making and management. In 2008, the total annual capital expenditure in fixed assets by FS totaled €6,096 million, compared to €2,720 million in 1997. In 2008, FS’s revenues amounted to €7,816 million, compared to €7,685 million in 2007, an annual increase of 1.7 per cent. Operating costs decreased from €7,222 million in 2007 to €6,781 in 2008 mainly as a result of the successful implementation of costs saving policies and the decline in stock spending. As a result, FS recorded consolidated profits of €16 million in 2008, compared to €409 million loss in 2007.

In response to EU directives and intervention by the Italian Antitrust Authority (Autorità Garante della Concorrenza e del Mercato), since March 1999 Italy has been implementing a plan aimed at preparing Italy’s railways for competition. Italy liberalized railway transportation by creating two separate legal entities wholly owned by FS: Trenitalia S.p.A., managing the transportation services business, and Rete Ferroviaria Italiana S.p.A. (“RFI”), managing railway infrastructure components and the efficiency, safety and technological development of the network. The Government plans to privatize the freight and intercity businesses, while the local transport and infrastructure divisions will continue to be Government-operated. The Government’s objective is to devolve to the regions a significant part of the State responsibilities for local railways. Under the planned decentralization process, regions will become responsible for the whole range of local transportation services through contracts entered into with the State. The international segment of railway transport was liberalized in 2000 and as of May 20, 2007, 40 licenses had been granted to international operators.

Projects for new high-speed train systems (Treno ad alta velocità, or TAV) linking the principal urban centers of Italy with one another and with neighboring European countries, as well as other infrastructure projects designed to upgrade the railway network, are under way or, in some cases, have been completed. On December 14, 2008, RFI inaugurated the high-speed train railway between Milan and Bologna, and RFI expects to complete the Turin — Salerno line (via Milan, Bologna and Florence) by December 2009.

Gioia Tauro (in the proximity of Reggio Calabria) is the largest Mediterranean port for container shipping. During the late 1990s, Istituto per la Ricostruzione Industriale or “IRI,” a State holding company, completed the privatization of its international maritime companies. Tirrenia, a state-owned company that is in the process of being privatized, operates ferry operations and regional maritime activities.

Alitalia, which used to be Italy’s national airline, was partially privatized in 1998 and re-capitalized in early 2002. Following a capital increase in December 2005, the Ministry of Economy and Finance’s stake decreased to 49.9 per cent. For the year 2007, Alitalia recorded losses of approximately €364 million, compared to losses of approximately €605 million for 2006. In August 2008, Alitalia filed for protection pursuant to a newly enacted receivership procedure. Under this procedure, in December 2008, Alitalia’s extraordinary administrator sold Alitalia’s air transport activities for €1 billion to Compagnia Aerea Italiana S.r.l. (“CAI”), a consortium comprising Intesa San Paolo S.p.A. and various Italian entrepreneurs. In the same period, AP Holding, a subsidiary of the Toto Group, and CAI agreed to transfer ownership of Air One, another airline group, to CAI. Subsequently, CAI integrated Air One’s fleet with the assets taken over from Alitalia, thereby creating a new airline. The joint network of the two companies has been active since January 13, 2009 and may operate in derogation of the antitrust rules until June 30, 2009. The Alitalia assets excluded from the sale to CAI were transferred to a company that was placed under special administration, with a view to disposing of those assets over time. The proceeds expected from such disposal, as well as the proceeds derived from the sale of the air transport activities have been and will continue to be used to repay Alitalia’s creditors for debt accrued prior to the sale of the air transport activities. As a result of the above described transactions, Italy no longer owns an interest in any air carrier.

Passenger air traffic in Italy is concentrated, with approximately 60 per cent of all air traffic in 2007 attributable to Fiumicino and Ciampino airports in Rome and Linate and Malpensa airports in Milan.