Why the sale could work this time

ITA Airways jet

The Italian airline is running out of time and money is running out. Now a buyer must be found quickly.

(Photo: Reuters)

Frankfurt Lufthansa could still take over the Italian airline ITA Airways. According to circles close to the negotiations, there is a good chance that Europe’s largest airline group will be awarded the contract. In the Italian media, too, Lufthansa has been traded highly as a buyer for a few days. A Lufthansa spokesman did not want to comment on the subject, only referring to earlier statements by management that they were very interested in the Italian market.

If the sale works out this time, it would be the end of years of wrangling. In 2017, the Italian airline Alitalia went bankrupt. Since then, the once proud airline has been in turmoil: government aid worth billions, failed sales attempts, re-establishment as ITA Airways, failed sales attempts again.

In the industry, the events surrounding the Italian airline have only been shaking heads for a long time. But now the ITA Airways final could have begun. There are several reasons for this.

Draghi’s hesitation takes revenge

Actually, a sale to Lufthansa had already become apparent at the beginning of the year. Completely surprisingly, the German airline announced at the time that it wanted to bid together with the shipping company MSC. The then Prime Minister Mario Draghi is said to have brought MSC on board, the owner of the Geneva-based shipping company is the Italian Gianluigi Aponte.

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The model had a lot of charm for Lufthansa, because MSC would have brought the necessary small change with them. That would have spared the airline’s coffers, which is still processing the consequences of the pandemic, and was well received by investors. But then Draghi postponed the decision again and again – until it became clear that there would be a change of government in Rome.

Italy’s Prime Minister Giorgia Meloni

The new government in Rome has obviously understood that a quick decision is needed when selling ITA. That increases Lufthansa’s chances.

(Photo: Reuters)

At the last minute, Draghi sorted out the Lufthansa consortium and concluded exclusive negotiations with the financial investor Certares, who was also in the bidding race with Air France-KLM. However, the new right-wing conservative government led by Giorgia Meloni then canceled these talks and reopened the bidding process.

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As a result, the economic situation of ITA Airways has deteriorated further due to the delay, and now it has to be sold in a hurry. Because in November, the airline drew the last tranche of the aid approved by the EU Commission – 400 million euros. The money is likely to be used up soon, and it will be very difficult to push through new aid in Brussels.

The tense situation has led to a significant drop in the value of ITA. At the beginning of the year, the Draghi government had set the enterprise value at up to 1.2 billion euros. Now in financial circles there is only talk of up to 450 million euros.

Lufthansa can now pay on its own

All of this makes it much easier for Lufthansa to bid on its own, i.e. without a “financier” like MSC. Those responsible for the shipping company are no longer interested in ITA anyway. Disappointment with Draghi’s actions is too great in Geneva. The Lufthansa management can “sell” a takeover at a price of 450 million euros to its own investors, especially since such a takeover usually takes place in several stages. It also helps that Lufthansa is now writing good operating figures again, i.e. has sufficient money.

For the time being, there remains speculation as to whether Lufthansa will bid for ITA together with the Italian state railways. The state railway was already involved with Alitalia, but the idea didn’t work. The strategic overlaps are too small. But the Meloni government is looking for ways to give a possible deal with Lufthansa an Italian touch. But one thing is also certain: Lufthansa will only accept the majority of ITAs.

There are no alternative bidders for ITA

It cannot be ruled out that further interested parties will register. But because of the high time pressure, alternatives are rare. The government in Rome could have made a deal with the financial investor Certares long ago, but obviously didn’t want to. Because ITA needs an industrial partner who will immediately integrate the small airline into its own network, help with the purchase of fuel and also with the procurement of new aircraft. Otherwise it threatens to fail again. A financial investor does not offer these opportunities.

Air France-KLM is not allowed to bid on its own because the airline is still using government aid. The EU competition authorities therefore prohibit larger transactions. The US airline Delta, which had supported the Certares and Air France-KLM consortium, made it clear early on that it did not want to take the financial risk of investing itself.

What remains is Lufthansa, a bidder with whom the otherwise very contentious Italian trade unions can now become friends. In industry circles, it is therefore not excluded that the ITA chapter can finally be closed by the end of the year.

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