DEUTSCHE Lufthansa’s 325 million euros (US$350 million) investment in Italy’s ITA Airways won approval from the European Union, allowing Prime Minister Giorgia Meloni to offload responsibility for an airline whose predecessor was a drain on state resources for decades.
The European Commission said on Wednesday (Jul 3) it approved the planned deal after accepting a slate of concessions aimed at preserving fair competition on key routes out of Italy to the rest of Europe and North America.
“We needed to prevent that passengers end up paying more or end up with fewer and lower quality air transport services,” the EU’s competition chief Margrethe Vestager said in a statement, adding that the remedies filed address the commission’s competition worries.
The approval from EU watchdogs puts an end to months of uncertainty over the future of the deal – in which Cologne-based Lufthansa will initially buy 41 per cent of the successor to failed flagship Alitalia from the Italian state, with an option to acquire the rest later.
The transaction had earlier seemed on the brink of collapse, as EU regulators pressed the parties for better concessions in a bid to preserve fair competition on flights out of Milan Linate and Rome airports, with particular concerns emerging over ensuring fair competition on transatlantic routes.
The sale of ITA is in line with Meloni’s efforts to meet a 20 billion euros privatisation target. While her right-wing government will not immediately cash in millions as part of the deal, it will limit exposure to an industrial liability which has weighed on public coffers to keep flying.
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For Meloni, the deal also marks a symbolic element of pride as several governments before hers, including the one led by Mario Draghi, failed to put a definitive end to the Alitalia saga.
The transaction had been closely watched in the aviation industry as an indicator of how the much overdue consolidation in the European market might progress.
Lufthansa and the Italian government had grown increasingly frustrated with the pushback from Brussels in recent months, with Lufthansa CEO Carsten Spohr saying that he could well live without the Italian business, while the same couldn’t be said of ITA without Lufthansa.
Under the terms of the EU decision, Lufthansa and the Italian government have to make available to at least one rival airline the assets for them to operate non-stop flights between Rome or Milan and certain airports in Central Europe. Lufthansa will also transfer take-off and landing slots at Milan Linate airport for certain European routes.
For long-haul flights, the new company had pledged to enter into agreements with rivals to improve their competitiveness, by way of interlining agreements or slot swaps.
The EU commitments require Lufthansa to obtain approval from the European Commission for remedy takers before the deal can finally close, the bloc’s regulators said. This means that EU regulators will have to double check if the airlines selected to benefit from the concessions will preserve competition.
With ITA, Lufthansa gains an asset that has been persistently unprofitable for decades, but also one that serves one of Europe’s largest and most competitive markets. Budget specialists Ryanair Holdings and Easyjet have created large businesses in Italy, a major Mediterranean tourism hub.
Lufthansa has proven that it can integrate and turn around ailing national subsidiaries. The German airline group also owns Swiss, Austrian as well as the Belgian Brussels Air businesses.
The units have benefited from Lufthansa’s global reach and joint purchase agreements on aircraft, as well as funnelling more business through the main hubs of Frankfurt or Munich.
Increasing consolidation in the European airline industry has brought more transactions to the desks of the EU’s competition regulators.
The bloc’s watchdog are also currently probing British Airways parent IAG’s 400 million euros takeover of Air Europa – a deal that has already been withdrawn once in the past due to regulatory pressure, and could face similar hurdles this time around. BLOOMBERG