Italy Puts ITA Airways Deal On Hold Over Dispute With Lufthansa Group On Price

The Italian government has reportedly considered pressing the brake pedal on the ITA Airways and Lufthansa Group merger, as the two sides have begun to argue about the conditions of the merger, including the price.

Price discussions

According to an exclusive report by the Italy-based outlet Corriere Della Sera, citing people familiar with the matter, the Italian Ministry of Economy and Finance (Ministero dell’Economia e delle Finanze, MEF) has refused Lufthansa’s suggestions to adjust the amount of cash they would have to pay for ITA Airways.

The report added that Lufthansa Group wanted to reduce the amount of cash it would pay for a 41% stake in the Italian airline, arguing that ITA Airways, owned by the Italian government via the MEF, would lose value due to its performance in Q4.

Reuters quoted a source who said that the Department of the Treasury (Dipartimento del Tesoro, DT), a department within the MEF, has refused to reduce the price that Lufthansa Group would have to pay for ITA Airways.

Meanwhile, the Italian outlet outlined that the DT and MEF believed they had no obligations to complete the merger if it went against the country’s interests.

In a statement to Simple Flying, a Lufthansa Group spokesperson said that the Germany-based airline group was adhering to the 2023 agreement it signed with the MEF to acquire an initial 41% stake in ITA Airways.

“The company has signed the necessary remedy package by the agreed deadline.”

Cash position

The latest quarterly results showed that the Lufthansa Group ended the first nine months of 2024 with a net profit of €830 million ($904.3 million), with €11.4 billion ($12.4 billion) of available liquidity.

Out of that figure, cash, current securities, and fixed-term deposits were €8.8 billion ($9.5 billion), an increase of around €600 million ($653.6 million) compared to the beginning of the year.

Despite the European Commission (EC) expressing concerns about the merger’s impact on competition within the European Union (EU) in March, the executive arm of the union eventually approved the deal in July.

The stamp of approval came with several conditions, including but not limited to enabling competitors to launch routes between Rome or Milan and certain Central European airports and giving up slots at Milan Linate Airport (LIN).

“Pursuant to the commitments, Lufthansa and the MEF can only implement the transaction following the Commission’s approval of suitable remedy takers for each of the short-haul, long-haul, and Milan Linate commitments.”

During the company’s Q4 2023 earnings call in March, Carsten Spohr, the chief executive officer (CEO) of Lufthansa Group, said that while the company had been making progress on the merger with ITA Airways, it was slower than planned. Spohr added that the group had continued its intense dialogue with the EC.

Initial $350 million payment

When Lufthansa announced its preliminary merger agreement with the MEF in May 2023, the group said that it would initially acquire a 41% stake in ITA Airways for €325 million ($354.1 million) through a capital increase.

In turn, the MEF committed to investing an additional €250 million in the Italian carrier, which rose from the ashes of Alitalia, with the EC previously concluding that ITA Airways was not the economic successor of Alitalia in September 2021.

Nevertheless, at the time, Sphor expressed that the merger – with Lufthansa having the option to acquire the remaining stake in ITA Airways at a later date – was a win-win for Italy, ITA Airways, and the group.

“As a young company with a modern fleet, and with its efficient and expanding hub in Rome, ITA is a perfect fit for Lufthansa Group.”

The statement noted that the prices of the potentially multiple acquisitions of the remaining shares would depend on the performance of ITA Airways.