The die is cast. After months of negotiations, German airline group Lufthansa will take a minority stake in Italian airline ITA Airways. The Germans are injecting 325 million euros into ITA in exchange for a 41% stake. Eventually, they may acquire the airline outright.
Additional government funding
In addition to the capital increase by Lufthansa, the Italian government is injecting 250 million into the airline, created in November 2020 as a slimmed-down successor to Alitalia, which went bankrupt in 2017. Rome had given the green light in February 2022 to the privatization of ITA Airways, 100% controlled by the State, after years of fruitless search for a buyer for its ancestor Alitalia.
ITA Airways achieved a turnover of 1,6 billion euros last year, and reported a loss of 486 million euros. Lufthansa plans to expand the Italian fleet from 71 to 94 aircraft by 2027, targeting sales of 4,1 billion euros. The company employs 4 000 people and is expected to increase to 5 500 in 2027. (Alitalia had 10 500 employees). It offered 64 destinations and carried more than 10 million passengers last year.
Third largest air market in EU
“As part of the Lufthansa family, ITA can develop into a sustainable and profitable airline,”, said Lufthansa CEO Carsten Spohr. “A stronger ITA will strengthen competition in the Italian market.” The operation will allow the German group to expand its “access to the third largest air market in Europe”.
The deal with ITA has yet to be approved by the European Commission, among others. After the approval, Lufthansa will take operational control and appoint the CEO. Lufthansa strategy chief Jörg Eberhart, who already headed the regional subsidiary Air Dolomiti operating in northern Italy, is under evaluation as the new head of ITA.
In principle, the agreement also includes the possibility of Lufthansa eventually acquiring ITA outright. The purchase price will depend on the airline’s performance. If Lufthansa decides to go ahead, it deploys a similar scenario as with Brussels Airlines. There too, Lufthansa started with a minority stake, and later in early 2017, fully absorbed Brussels Airlines.
Long time coming
Like Brussels Airlines, as well as Swiss and Austrian Airlines, ITA will operate as a separate brand in the German group. Portugese TAP is already being mentioned as Lufthansa’s possible next prey.
The ITA deal had many strings attached. Last summer, Mario Draghi’s Italian government chose French-Dutch group Air France-KLM, backed by US investors, as the acquirer. The combination of Swiss container shipping company MSC and Lufthansa was then ready with a bid of 850-900 million euros for an 80% stake in ITA Airways.
However, with Giorgia Meloni taking office, the game changed. She preferred Lufthansa, but without MSC, rather than Air France-KLM. The sale of ITA Airways will be a relief for the Italian State because, over the years, it has had to pay more than 13 billion euros to bail out the national company.
According to Italian media, the state could hold a small stake of 5% to 10% for a while to secure first in line information and exert influence.
Compete with Ryanair and easyJet
The take-over will allow Lufthansa to strengthen itself on the American continent, but also in Africa and Asia, by using the hub Rome-Fiumicino.
Lufthansa has been trying to gain a foothold in the Italian market for some time. In 2009, they launched an attempt under the name Lufthansa Italia, which failed in 2011. Currently, the Lufthansa Group only attracts transfer passengers from rich northern Italy to the Munich hub with flights operated by Air Dolomiti. With ITA, Lufthansa is now acquiring market share in an environment dominated by non-domestic low-cost carriers such as Ryanair and easyJet.
For Lufthansa Group, Italy is the most important market outside of its home market and the US.
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