DEUTSCHE Lufthansa’s 325 million euro (S$466 million) investment in Italy’s ITA Airways is set to be approved by the European Union, paving the way for Prime Minister Giorgia Meloni’s government to offload a loss-making asset as she tries to improve her nation’s finances.
The EU’s competition arm is in the process of drafting an approval decision, after Lufthansa and the Italian government addressed remaining sticking points, according to people familiar with the matter who spoke under condition of anonymity.
Lufthansa filed a final remedy package earlier this week which has calmed EU fears over preserving fair competition particularly on long-haul routes, the people said. This will also help to keep prices down for consumers, they added.
Watchdogs have until Jul 4 to rule on the deal. The people stressed that the content of the draft decision could still change ahead of this date.
Lufthansa wants to take over the former Alitalia in two stages to gain a stronger foothold in one of Europe’s biggest but also most competitive aviation markets. The deal has faced tough scrutiny from the Brussels-based European Commission, particularly its effect on long-haul travel.
Despite a spate of concessions, the transaction seemed on the brink of collapse after regulators continued to raise concerns over its impact on transatlantic routes. But more recently, Lufthansa CEO Carsten Spohr struck an optimistic tone on the outcome of the investigation in Brussels.
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Under the terms of the rescue plan, Cologne-based Lufthansa would 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 sale of ITA is a key part of Meloni’s efforts to meet a 20-billion-euro privatisation target. Her right-wing government, which swept to power in 2022 on a pro-business platform, was counting on not having to continue paying to keep ITA flying.
While the premiers of France and Germany were humbled by last weekend’s European elections, Meloni stands out as a rare leader on the front foot as she prepares to host the Group of Seven summit this week.
The Brussels-based commission, Lufthansa and a spokesperson for Italy’s government all declined to comment.
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 had grown increasingly frustrated with the pushback from Brussels in recent months, with Spohr saying that he could well live without the Italian business, while the same couldn’t be said of ITA without Lufthansa.
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 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. BLOOMBERG
