Lufthansa’s acquisition of ITA Airways shares receives European Commission approval

The European Commission has approved, under the EU Merger Regulation, the proposed acquisition of joint control of ITA Airways (“ITA”) by Deutsche Lufthansa AG (“Lufthansa”) and the Italian Ministry of Economy and Finance (“MEF”). The approval is conditional on full compliance with the remedies offered by Lufthansa and MEF.

Today’s decision follows an in-depth investigation into the proposed transaction, including the sending of a statement of opposition. Lufthansa and ITA operate an extensive network of routes from their respective hubs in Austria, Belgium, Germany, Switzerland and Italy. Their operations are highly complementary, serving different hubs in Central Europe and Italy respectively. Lufthansa has joint ventures with United Airlines and Air Canada on transatlantic routes, and with All Nippon Airways on routes to Japan. While ITA is performing well today, the long-term sustainability of ITA as a stand-alone carrier would remain highly uncertain without the transaction.

Commission investigation

During its in-depth investigation, the Commission collected extensive information and views from market participants and other interested parties, including competitor airlines, airports, business customers, consumer and passenger associations, as well as individual consumers who contacted the Commission.

Following a market investigation, the Commission expressed concerns that the transaction, as originally notified, could have the following effects:

• Reduced competition on a limited number of short-haul routes connecting Italy with Central European countries via direct and single-stop flights. On such routes: (i) Lufthansa and ITA compete directly or would likely soon compete directly; and (ii) competition is limited and comes mainly from low-cost carriers such as Ryanair, which in many cases operate from more distant airports.
• Reduced competition on a limited number of long-haul routes between Italy and the US and Canada. Given that Lufthansa and its joint venture partners United Airlines and Air Canada coordinate on prices, capacity and schedules and share revenues, the Commission treats the actions of ITA, Lufthansa and its joint venture partners as actions of a single entity when assessing this transaction. The joint venture partners ITA and Lufthansa compete directly with direct flights on these routes, and competition from other airlines is limited.
• It created or strengthened ITA’s dominant position at Milan Linate Airport, which could make it more difficult for rivals to provide air passenger transport services to and from Milan Linate Airport.

Proposed remedies

To address the Commission’s competition concerns, Lufthansa and MEF presented a package of remedies including:

• Short-haul Route Commitments: Lufthansa and MEF will provide one or two competing airlines with the necessary assets to enable them to launch non-stop flights between Rome or Milan and certain airports in Central Europe. Beneficiaries of the remedies would be required to operate these routes for a specified minimum period. Lufthansa and MEF will also ensure that one of these competing airlines has access to the ITA domestic network to offer indirect connections between certain airports in Central Europe and certain Italian cities other than Rome and Milan.
• Long-haul Route Commitments: The combined company will enter into agreements with rivals to improve their competitiveness on long-haul routes, for example through interlining agreements or slot swaps. This will lead to increased frequencies of direct flights and/or improved connections for one-stop flights on each route. In its assessment, the Commission took into account the fact that MEF will retain a controlling interest in ITA after the transaction and will continue to have incentives for ITA to compete with Lufthansa’s joint venture partners in North America, at least until ITA is integrated into the joint venture.
• Commitments for Milan Linate Airport: Lufthansa and MEF will transfer take-off and landing slots at Linate to the beneficiaries of the remedies for short-haul routes. The number of slots to be sold exceeds the number of slots required for short-haul routes and the number of slots that the transaction would add to ITA’s portfolio. This will allow the beneficiaries of the remedies to establish a permanent base at Linate and potentially offer their own one-stop connections between Italy and Central Europe.

Under the commitments, Lufthansa and MEF can only complete the transaction once the Commission has approved the appropriate remedy recipients for each of the short-haul, long-haul and Milan Linate commitments. The Commission will assess the suitability of the remedy recipients in the context of a separate purchaser approval procedure.

These commitments fully address the competition concerns identified by the Commission.

The Commission has therefore concluded that the transaction, as modified by the commitments, will no longer raise competition concerns. The decision is conditional on full compliance with the commitments. An independent trustee will monitor their implementation under the supervision of the Commission.

Companies and products

ITA, headquartered in Italy, is a full-service carrier that transports passengers and cargo domestically and internationally. ITA operates a hub-and-spoke network with its main hubs in Rome and Milan. ITA was established by the Italian state in October 2020. ITA is a member of the SkyTeam alliance.

Lufthansa, headquartered in Germany, is a global full-service carrier that transports passengers and cargo domestically and internationally. Lufthansa also operates a hub-and-spoke network with main hubs in Frankfurt, Munich, Zurich, Vienna and Brussels. Its subsidiaries include Austrian Airlines, Brussels Airlines, Eurowings, Swiss International Airlines and Air Dolomiti. Lufthansa is a member of Star Alliance, a transatlantic joint venture with United Airlines and Air Canada, and a joint venture with All Nippon Airways on routes between the EEA and Japan.

MEF carries out the tasks and responsibilities of the Italian government in the areas of economic policy, financial policy, budgeting and tax policy. MEF holds shares in public and strategic companies in Italy, including in the transport sector, and is currently the sole shareholder in ITA. The companies in which MEF holds shares operate worldwide.

Call Control Policies and Procedures

The Commission has the duty to assess mergers and acquisitions involving companies with turnover above certain thresholds (see Article 1 of the EU Merger Regulation) and to prevent concentrations that might significantly impede effective competition in the European Economic Area or a substantial part of it.

The vast majority of notified mergers do not raise competition concerns and are cleared after routine review. From the moment a transaction is notified, the Commission usually has 25 working days to decide whether to grant clearance (Phase I) or to launch an in-depth investigation (Phase II).

In addition to the proposed transaction, there is one Phase II merger investigation currently ongoing: the proposed acquisition of Air Europa by IAG.