Brussels shakes up Lufthansa with an investigation into its takeover of ITA Airways

2024-01-23 17:17:00

When it comes to competition rules, the European Commission keeps a close eye on it and does not hesitate to investigate if necessary. New illustration this Tuesday with the announcement of the opening of a “ thorough investigation » on the planned takeover of the Italian airline ITA Airways (successor to Alitalia) by the German group Lufthansa, currently leading European air carrier.

« The operation could reduce competition (…) for several short-haul and long-haul routes » to and from Italy, thus estimated “ as a preliminary » the European Commission, in a press release. Brussels’ reservations concern in particular connections between Italy and central European countries on which there would be too little competition.

In response to this announcement, Lufthansa said on Tuesday that it was firmly convinced that the transaction would be authorized following the investigation. The group stressed that it would “ continue to work closely and constructively with the Commission » for a rapid conclusion of the current examination. The German airline claims that its entry into the capital of ITA will have “ overall a positive effect » on competition in Italy and Europe.

Lufthansa has not yet convinced Brussels

In detail of the procedure, the acquisition operation carried out by Lufthansa was notified to the European Commission, guardian of competition in the EU, on November 30. “ On January 8, 2024, Lufthansa presented commitments to address certain issues ” but they ” were, however, not enough (…) to clearly dispel the fears expressed », Explains the Commission on this subject.

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It now has 90 working days, until June 6, 2024, to decide. “ The opening of an in-depth investigation does not prejudge the outcome of the procedure », recalls the Commission, which will have the possibility of prohibiting the transaction or authorizing it if it considers that sufficient guarantees have been provided.

A strategic acquisition for the German company

As a reminder, in October 2021, Alitalia closed down to make way for ITA Airways, in an airline market which was struggling to recover from the turbulence of the coronavirus pandemic. Placed under public administration in 2017, Alitalia had accumulated losses of 11.4 billion euros between 2000 and 2020.

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Brussels had at that time given the green light for the new company to take off and had authorized new public financing of 1.35 billion euros, on the condition that ITA would eventually stand on its own two feet. The restructured company had started with a fleet reduced by half.

But in May 2023, Lufthansa wanted to be involved by signing an agreement to acquire a stake in the Italian public company, which worries the European Commission. Because the German national company intends to initially acquire a minority share of 41% of ITA, reserving the option of increasing the capital to 100% in the medium term. This acquisition for 325 million euros would be made through a capital increase, while the Italian State would inject 250 million euros in order to strengthen the capital of ITA Airways, according to the terms of the ‘agreement. In strategic terms, the acquisition of ITA Airways by Lufthansa should allow the German giant to expand its access to the Italian market, the third largest in the EU. It would also provide ITA with a solid shareholder.

Not Lufthansa’s first problems with European authorities

This is not the first time that the German company has been confronted with the Brussels supervisory authorities. In May last year, The Court of First Instance of the European Union has annulled two vast recapitalization plans for Lufthansa by the German state. This amounted to 6 billion euros and was nevertheless approved in 2020 by the European Commission.

To justify its decision, the European court explained in a press release that the Commission “made several mistakes” considering that the German company “was unable to finance itself on the markets” to meet its needs. As a reminder, the strong restrictions on the airline sector during the Covid-19 pandemic had almost paralyzed Lufthansa’s activities, placing it on the brink of collapse. A particular circumstance which did not influence the European judges in their decision.

This development of European justice has not had any major consequences for Lufthansa. The ball is indeed in the court of the European Commission, which can appeal or respond to the demands of the court. But since May 2023, nothing has happened. Lufthansa has in addition already repaid all of its state aid.