Lufthansa Group Reaches Agreement With Italian Government For ITA Airways

Lufthansa Group and the Italian Ministry of Economy and Finance (Ministero dell’Economia e delle Finanze, MEF) have reached an agreement to finalize the initial part of the merger between the group and the MEF-owned ITA Airways.

No changes to the price

In a statement on November 11, MEF confirmed that Lufthansa Group and the Ministry had submitted their package of remedies to the European Commission (EC) regarding the Germany-based group’s acquisition of an initial stake in ITA Airways.

“The final approval of the European Commission is confidently awaited in order to proceed with the closing of the transaction. The economic conditions envisaged have not changed with respect to the agreement already signed.”

In a statement to Simple Flying, Lufthansa Group also confirmed that the remedy package has been submitted to the EC to fulfill the conditions to clear the merger.

“The submission was done jointly with the Italian Ministry of Economy and Finance (MEF) in due time on 11 November 2024. Lufthansa Group is confident that the EU Commission will approve the remedy package within the upcoming weeks.”

When the EC approved the merger, it said that ITA Airways’ ability to continue operations as a standalone airline was “highly uncertain absent the transaction.”

However, Lufthansa Group and the MEF had to agree to the EC’s proposed remedies, namely:

• Allowing one or two rival carriers to begin non-stop flights between Rome and Milan and certain Central European airports
• Improving the competitive conditions on transatlantic routes (the EC had considered Lufthansa’s Star Alliance partners United Airlines and Air Canada and their activities as a single entity when assessing the merger)
• Giving up slots at Milan Linate Airport (LIN)

(Almost) collapsing deal

As previously reported by Italy-based Corriere Della Sera, citing people familiar with the matter, the MEF had refused to potentially reduce the price of the initial 41% stake in the Italian airline.

The price dispute could have ended the planned merger, with the MEF having no issue walking away from the deal if it did not serve Italy’s interests, the previous report by the Italian outlet added.

When Lufthansa Group and the MEF agreed to acquire 41% of ITA Airways’ shares in May 2023, the price for the initial stake was set at €325 million ($345.1 million) through a capital increase. In addition, the MEF would also inject €250 million ($265.5 million) into the Italian carrier through a capital increase.

The airline group has an option to acquire the remaining 59% at a later date, the announcement read at the time.

“The purchase price for the remaining shares will be based on the business development of ITA Airways.”

Multi-hub strategy

When Lufthansa Group announced the deal, the company highlighted that ITA Airways and its main hub at Rome Leonardo da Vinci–Fiumicino Airport (FCO) would become the fifth network airline in the group’s multi-brand, multi-hub model.

In addition to Lufthansa (the airline), the group also owns Austrian Airlines, Brussels Airlines, and Swiss International Air Lines ( SWISS), as well as leisure carriers, such as Discover Airlines.

Lufthansa City Airlines and Air Dolomiti also provide feeder services to Lufthansa, while Eurowings covers the group’s short-haul, low-cost capacity throughout Europe.

During the company’s Q3 earnings call, Carsten Spohr, the chief executive officer (CEO) of Lufthansa Group, responding to a question about travel demand, said that the group does not look at it that way when it comes to demand for different airlines’ services.

“We are now incorporating our hubs in a way […] that 80% of our connecting intercontinental passengers can already pursue their destination [through] more than one hub.”

Up to 10% of the group’s passengers can use all five hubs, Spohr added, alluding to Lufthansa’s two hubs in Germany, namely Frankfurt Airport (FRA) and Munich Airport (MUC), as well as Brussels Airport (BRU), Vienna Airport (VIE), and Zurich Airport (ZRH).

However, Spohr mentioned that the Lufthansa Group has no access to ITA Airways’ financial reports due to European Union (EU) regulations, but “ITA Airways has been doing better” than Lufthansa’s business plan had anticipated.

Spohr concluded that when the two companies begin working together, the Italian carrier will be somewhere between the group’s best and worst airlines in terms of profitability and margins.