Frankfurt The planned takeover of the Italian airline ITA by Lufthansa is nearing completion. “Today the company submitted a corresponding offer in the form of a declaration of intent to the Italian Ministry of Economy and Finance,” Lufthansa announced on Wednesday afternoon. If both parties sign this declaration of intent, further negotiations and talks will be conducted exclusively.
Lufthansa’s goal: First, Europe’s largest airline wants to acquire a minority stake from the sole owner, the Italian state. At the same time, “options to purchase the remaining shares are to be agreed at a later date,” the group said. Further details of the transaction were not given. There is speculation in industry circles that Lufthansa will initially acquire a block of shares of around 40 percent and pay around 300 million euros for it.
Nothing should now stand in the way of Lufthansa’s entry. Rival Air France said on Wednesday that it would not submit its own offer for ITA, so Lufthansa is likely to be the only bidder. The Lufthansa management’s plans are well received on the stock exchange, although numerous analysts are rather critical of the commitment. Even before the details of the transaction were made public in the afternoon, the Lufthansa share price had risen by over four percent.
A declaration of intent between Lufthansa and the Italian government should now be signed quite quickly. This would give Lufthansa the opportunity to immediately take over the operational management of the Italian airline. The government in Rome recently expressly permitted this in a decree. However, it will probably take some time before the final contract for Lufthansa’s entry and participation is signed.
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There is a reason why the state allows the investor to intervene even before the so-called “closing”. ITA is not doing well, money is running out. ITA is said to be losing up to 1.5 million euros a day, Italian media reports. The competition is fierce, especially from low-cost carriers like Ryanair. So hurry is needed to get the airline on track. Rome ITA can no longer provide new funds.
The real work is still waiting: integration
At the same time, ITA management has ambitious plans that cost money. 39 new jets are on order, which would increase the fleet to 100 aircraft. Numerous employees were also hired. It is unclear to what extent these investments will endure under the new owner. Because losses incurred by ITA will be accumulated by Lufthansa in the event of a later complete takeover and will no longer be absorbed by the Italian state. However, this risk is still limited by the minority interest.
It is also unclear whether the EU Commission will announce further requirements for entry. In principle, the cartel guardians in Brussels would not view the transaction critically, according to industry circles. However, it is possible that the duo Lufthansa and ITA will have to accept restrictions on certain monopoly routes.
The Lufthansa management has been keeping an eye on the Italian market for many years. The group is active there itself, Lufthansa and Swiss head for the country. The subsidiary Air Dolomiti, in turn, brings passengers from Italy to the German hubs of Lufthansa. But there is no large airline subsidiary like the ones in Switzerland, Belgium and Austria.
Italy is the second largest foreign market for Lufthansa after the USA. Lufthansa now flies more people from the United States to Italy than to Germany, said Lufthansa CEO Carsten Spohr. The former Lufthansa boss Wolfgang Mayrhuber had already tried to show more presence in Italy with his own airline. He founded LH Italia.
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At that time, the company was supposed to snatch market share from the state airline Alitalia. But after around two years and high losses, the offshoot was discontinued in 2011. One reason was the high cost. It will be all the more exciting to see whether Lufthansa will now be able to earn money with ITA. Analysts are skeptical.
Will the government in Rome keep their promises?
For years, Lufthansa was also traded as a potential investor in Alitalia, which had to file for bankruptcy in 2017 and finally ceased flight operations in October 2021. But time and again the frequently changing governments in Rome carried out short-term about-faces. Alitalia was an icon of the country, the Pope used the airline – politicians absolutely wanted an independent national airline. The risk of an engagement was also too great for the Lufthansa management at the time.
Now things should be different. By decree, the right-wing conservative government under Georgia Meloni promised in writing that it wanted to stay out of the operative business. But no one knows how resilient such a promise is. In the past, previous commitments were repeatedly revoked when there was a change of government. It is not yet clear whether Lufthansa has been able to enforce an opt-out clause for such cases. However, there has been speculation about this in recent days.
The trade unions have also traditionally had great power in Italy. They are said to have spoken out in favor of Lufthansa as an investor. It is also striking how much the employee representatives are currently holding back on the subject. But that could change quickly, for example if Lufthansa has to cut back on ITA more than expected.
More: What frequent flyers at Lufthansa will have to watch out for from 2024