Lufthansa receives EU approval to buy ITA Airways stake

Lufthansa won EU approval Wednesday to buy 41% of ITA Airways for 325 million euros ($350 million) after handing over routes and slots, with the news lifting shares in rival IAG and hopes it could take over Air Europa. The deal will strengthen Lufthansa’s presence in the lucrative southern European market and is one of three high-profile sector deals in Europe, underscoring the airline’s efforts to gain scale to offset rising operating costs.

Lufthansa Chief Executive Carsten Spohr told a news conference in Rome that ITA’s Fiumicino hub gave the group better access to Africa and Latin America and that it had significant growth potential. Lufthansa shares were up 3.27 percent at 13:39 GMT after the announcement, while IAG shares were up 4.6 percent on expectations that the approval would make it more likely to greenlight a takeover of Air Europa.

IAG said it was pleased that the Commission had recognised the benefits of airline consolidation. “Regulatory scrutiny remains high, but the agreement has likely increased confidence that airline mergers and acquisitions can be approved, subject to negotiated remedies with competition authorities,” said Ruairi Cullinane, an analyst at RBC.

ITA is also offering key long-haul routes to Lufthansa, which has an option to take full ownership if the Italian airline’s financial results improve. Lufthansa and ITA have agreed to hand over Italian short-haul routes to one or two rivals, the European Commission said, confirming a Reuters report. The German airline said it was in talks with Easyjet and Spanish budget carrier Volotea.

The combined group will also enter into interlining agreements or slot swaps on long-haul routes to increase frequencies and improve connections for single-stop flights. Interlining agreements allow individual airlines to serve passengers traveling on routes that require multiple flights on multiple carriers.

Lufthansa and ITA will also give some of the state-owned airline’s short-haul seats at Milan’s Linate Airport to competitors, allowing them to set up a permanent base. A Lufthansa spokesman said the airlines would give away 204 seats per week at Milan’s Linate Airport in the summer and 192 in the winter. That means ITA and Lufthansa will have fewer seats than before under the new deal.

It would also provide better connections for competitors in key North American hubs, namely Washington, San Francisco and Toronto, the spokesman said. “The package of remedies proposed by Lufthansa and the MEF (Italian economy ministry) in this cross-border agreement fully addresses our competition concerns, ensuring that a sufficient level of competitive pressure remains on all relevant routes,” EU antitrust chief Margrethe Vestager said in a statement.

NEXT STEPS It was not an easy negotiation, with Italian Economy Minister Giancarlo Giorgetti saying in Rome that he had argued with Spohr over the details “until the very last minute.” ITA would no longer need state aid as part of the deal, he added.

“This is the best option for ITA and Italy at the moment, a privatization that goes through Lufthansa, which has a multihub strategy and wants to focus on Fiumicino… that is also good for the Italian taxpayer,” said Andrea Giuricin, a transport analyst at TRA consulting. The deal can only be completed if rivals, approved by the EU antitrust watchdog, start operating the routes. EU regulators have been frustrated by previous approved deals in which rivals refused to take up routes and slots because they said they could not compete with Lufthansa.

Lufthansa has been struggling with rising labor costs linked to strikes earlier this year, prompting it to issue a profit warning. Analysts say rebuilding ITA won’t be easy, as predecessor Alitalia struggled with decades of financial problems and bailouts, and Lufthansa will likely have to make a significant investment.

Regulators in Europe are also concerned that the region’s three largest airline groups – IAG, Air France KLM and Lufthansa – are becoming too dominant, potentially limiting consumer choice and making flying less affordable. The commission is investigating IAG, the owner of British Airways,’s bid to buy Air Europa, and is also set to assess Air France-KLM’s bid to take a 19.9% ​​stake in Scandinavian carrier SAS. ($1 = 0.9295 euros)

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