The deal inked between the Italian government and Lufthansa ends a months-long tug-of-war between the German carrier and the AirFrance-KLM-Delta Air Lines Group backed by private equity investor, Indigo Partners, over the takeover of the Italian state carrier. The accord reached last Thursday (25MAY23), is also of relevance for the Group's cargo business since their member airlines gain a strong foothold in Milan, the center of the heavily industrialized north of Italy.
Not scaring shareholders
Lufthansa CEO, Carsten Spohr, and his executive team probably opened a bottle of champagne yesterday (25MAY23). After all, acquiring ITA Airways was a long-cherished wish of the very Italophile airline chief. Now he is at the finish line, thanks to the agreement reached after months of negotiations with the Italian Ministry of Economy and Finance. The accord enables Lufthansa to buy a 41% stake in ITA Airways, at an estimated €325 million. At the same time, the Italian state will inject a further €250 million into the company. Lufthansa intends to take ITA over completely, but only when the company is in the black. Analysts estimate that this will not be the case before 2026, maybe even later still. As long as Lufthansa only owns a minority stake, the company does not have to report the ITA losses on its own balance sheet and scare its own shareholders.
Gain ITA, lose slots?
The closing of the deal is still subject to the approval of the competition watchdogs. The EU Commission is said to have already signaled a longer and more in-depth examination of the accord made public now. This will delay the integration of ITA into the Lufthansa Group of Airlines, as a company is not yet allowed to integrate a newcomer into its own network during the review phase. Aviation experts expect that Lufthansa will have to give up some slots to get the final go from Brussels.
ITA operates a fleet of 68 aircraft and has just taken delivery of its first Airbus A330-900, provided by Air Lease Corporation (ALC). The aircraft will join the fleet in June to serve long-haul routes. Currently, the carrier employs slightly less than 4,000 people. Its home base is Rome-Fiumicino Airport, but it has a strong presence also in Milan Linate. In fiscal 2022, the Alitalia successor reported a net loss of 486 million euros.
Strong Italian passenger and cargo market
So, what makes the Alitalia successor and cash-burning ITA Airways so interesting for Lufthansa? Next to its German home market and the USA, Italy is not only the carrier’s third largest passenger market but also a strong contributor to the Group’s cargo business. Provided the EU gives the green light for the integration, Lufthansa intends to expand Rome-Fiumicino as a hub for ITA and the entire Lufthansa Group, strengthen ITA's network to the southern hemisphere (Latin America/Africa), and generate additional passenger flows through connecting flights. The fleet is also to be increased in line with network requirements.
This package will enable the Italian carrier to turn from red to black financial figures, the Lufthansa management estimates.
“Welcome on board,” says Mr. Stoll
As part of Lufthansa Group, ITA will remain a standalone airline with its own management and a strong brand identity - in line with Lufthansa Group's multi-hub, multi-brand, and multi-AOC strategy. In its release, Lufthansa management outlines the synergies that the pact creates for ITA, such as the alignment of the Lufthansa Group airlines’ networks, central revenue management, and the use of Lufthansa Group's global sales and marketing channels, which save costs and increase efficiency.
In a first reaction, Lorenzo Stoll, Head of Cargo at Swiss WorldCargo, points out that newcomer ITA will enrich the club of Lufthansa member airlines: “We welcome the fact that the Lufthansa Group is pushing ahead with the consolidation of airlines in Europe, and that ITA is now part of our Group. This takeover creates new synergy potential in the Italian market, which is important for the Lufthansa Group and its airlines. Our customers will benefit from an even better connection to the world.”
Swiss Air Lines traditionally has a strong presence in Italy, as do Lufthansa, Austrian Airlines, Air Dolomiti, and Brussels Airlines. Once ITA is integrated, the Group will seamlessly cover the Central European region from the North and Baltic Seas to the Mediterranean, as a unified block.
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