Lufthansa may take over Italian state airline Ita
Published: Wednesday, Jul 3rd 2024, 12:00
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A sigh of relief at Lufthansa and in Italy: the way is now clear for the takeover of Ita. For a long time, the EU feared higher ticket prices. Concessions are intended to counteract this.
Lufthansa can acquire a stake in the state-owned Italian airline Ita. After a lengthy review, the EU Commission has given the green light. However, the long-established company must fulfill a number of conditions. Among other things, the competition regulators from Brussels require the partners to relinquish take-off and landing rights in Milan-Linate and to provide start-up assistance to new competitors on medium and long-haul routes. To this end, negotiations with competitors are also to take place.
In a first step, the MDax group will initially acquire 41% of the shares in the former Alitalia. In the course of the next few years, a complete takeover could then take place. At midday, the two CEOs Carsten Spohr and Antonino Turrichi will jointly comment on the decision to the press in Rome. Italy's Finance Minister Giancarlo Giorgetti will also be present.
Long tug of war
The negotiations and reviews surrounding the entry of Europe's highest-revenue air transport group into its former Italian competitor have been dragging on for more than a year. Italia Trasporto Aereo (ITA) emerged from the state-owned airline Alitalia in 2020, which had repeatedly run into serious turbulence. The company currently still has around 4,500 employees.
By way of comparison, the Lufthansa Group currently has almost 99,000 employees and has already integrated three former state-owned airlines in the past: Swiss, Austrian and Brussels Airways. The brands as well as the hubs in the home countries of Switzerland, Austria and Belgium have been retained. Ita is not the official legal successor to Alitalia, but has secured the rights to the legendary name, which could soon be revived according to company circles.
Access to the Italian market
Lufthansa CEO Carsten Spohr had recently expressed optimism that approval from Brussels would be obtained quickly. With the takeover, Lufthansa is gaining access to the Italian market, which is very lucrative, particularly due to its close ties with the USA. The fact that Ita is another airline in the "Sky Team" alliance dominated by Air France is a desirable side effect.
Ita cannot survive alone
According to many experts, Ita could not survive on its own. In its home market, it has been pushed into second place by low-cost airlines such as Ryanair and Easyjet. On the profitable routes across the Atlantic it is finding it difficult to compete with the power of the much larger US providers. This is much easier in a strong alliance like Lufthansa, as the EU Commission has also recognized
It is precisely at this point that the EU competition authorities had raised concerns, because Lufthansa also has agreements with United and Air Canada in a joint venture across the North Atlantic. However, all other US carriers and Lufthansa's European competitors IAG, British Airways and Air France-KLM are also active in the world's most lucrative aviation market. In March, the Commission was convinced that the competitive pressure exerted by other airlines on routes between Italy and the USA and to and from Canada and Japan was negligible.
The EU officials were also concerned that Lufthansa could concentrate too much market power on short-haul routes between Italy and Central European countries. Although there is competition - primarily from companies such as Ryanair - such low-cost airlines often take off from remote airports. Lufthansa has also been active in northern Italy for years with its own regional airline Air Dolomiti.
Fears of higher ticket prices
The EU Commission feared above all disadvantages for consumers. This is because if there is little competition on routes and a lot of market power is concentrated with one provider, this provider can theoretically charge prices above the normal market level. Customers are then unable to switch to cheaper competitors, or only to a limited extent. This is another reason why there are strict competition rules in the EU.
Italy's right-wing government under Prime Minister Giorgia Meloni suspected in the meantime that other competitors wanted to slow down the takeover in Brussels. There were also open accusations from Rome towards France and Air France.
Fleet and personnel cost-cutting rounds already over
Similar to Swiss, which was taken over in 2007, Ita is a restructured company that has undergone painful rounds of cuts to its fleet and personnel. With joint purchasing and better planning, it could quickly turn a profit operationally, according to Lufthansa experts. And for 2027, the joint business plan of Lufthansa and the Roman Ministry of Finance from the previous year already envisaged a turnover of 4.1 billion euros (2022: 1.6 billion).
Italian government as a risk factor
325 million euros are to flow into the equity of the airline with 71 deep blue aircraft as the first installment for 41 percent of the shares. The Italian state, a risk factor in view of the rapid changes in government, will initially remain on board. From 2025, Lufthansa can exercise the option for a further 49 percent under precisely defined conditions and possibly even become the sole owner of the airline. The takeover of the remaining 10 percent from the state is subject to an assessment of the business development.
Lufthansa's Head of Strategy Jörg Eberhart, who has already headed the regional subsidiary Air Dolomiti, which operates in northern Italy, for almost eight years, is being discussed as the new Ita CEO. He could join another Lufthansa employee on the five-member Ita Board of Directors.
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