Lufthansa has finalized its acquisition of ITA Airways, purchasing a 41% stake for 325 million euros, with plans to increase ownership to 100%. The deal, which includes concessions to ensure competitive balance, follows extensive negotiations and requires approval from the European Commission. Despite initial pricing disputes, the agreement was endorsed by Italy’s Minister of Economy, highlighting Lufthansa’s strategic aim to penetrate the Italian market amid rising costs and ITA’s recent financial recovery.
Lufthansa Finalizes Acquisition of ITA Airways
In a significant development in the aviation sector, Lufthansa and the Italian government have successfully signed an agreement for the acquisition of ITA Airways. This milestone comes after extensive negotiations and was officially confirmed on Monday evening, just in time to submit the necessary documents to the European Commission. The agreement signifies the culmination of years of discussions aimed at transitioning ITA, the successor to the now-defunct Alitalia, into the hands of a robust player within the European airline industry.
A Phased Approach to the Acquisition
Lufthansa’s acquisition strategy involves a phased approach, beginning with the purchase of a 41% stake in ITA Airways for 325 million euros, with an option to increase its ownership to 100% in the future. This initial phase concluded in May 2023; however, finalization hinged on the European Commission’s stipulations, which mandated certain concessions to ensure competitive fairness. As part of the agreement, both companies agreed to relinquish some airport slots to maintain balanced competition on key routes.
The European Commission has been closely scrutinizing this acquisition, having launched a detailed investigation in January to assess the potential competitive effects, especially concerning short and long-haul flights to and from Italy. The final European approval is the last hurdle for this merger, with the Italian Ministry of Economy expressing confidence in receiving the go-ahead.
Contentions Over Acquisition Pricing
Throughout the negotiation process, the acquisition price has been a contentious issue. In 2023, Lufthansa initially agreed to acquire 41% of ITA Airways for 325 million euros, with the option to purchase an additional 49% at the same price. However, anticipating a potential decline in ITA’s value by the end of 2024, Lufthansa sought a 10 million euro reduction in the price for this future acquisition phase. The Italian government firmly rejected this request, emphasizing its stance that “Italy does not undervalue its airline.”
Ultimately, Italian Minister of Economy, Giancarlo Giorgetti, endorsed the agreement after insisting on measures to ensure competitive integrity, including the allocation of airport slots to other carriers. This pivotal move allowed the deal to be finalized just before the deadline, facilitating the submission of the necessary “remedies package” to the European Commission’s Directorate-General for Competition.
A Strategic Move for Lufthansa
This acquisition holds immense strategic value for Lufthansa, especially in a challenging economic landscape. The German airline group reported a 5% revenue increase in the third quarter of 2024, totaling 10.74 billion euros, yet faced an 8% decline in net profit, amounting to 1.1 billion euros, largely due to rising maintenance and labor costs. Consequently, this acquisition is seen as a crucial opportunity for Lufthansa to tap into the Italian market, which is the third largest in the EU.
On the other hand, ITA Airways has shown signs of recovery, achieving an EBITDA of 62 million euros in the first half of 2024 after years of financial struggles. In September, ITA reported a remarkable 27% rise in revenues, reaching 1.4 billion euros, further solidifying Lufthansa’s interest in this strategic acquisition.