Lufthansa's takeover of Austrian set for go ahead

3 Aug 2009 by Mark Caswell

Lufthansa’s takeover of Austrian Airline has taken an important step forward after the European Commission (EC) said competition concerns had been successfully dealt with.

The German carrier made further changes to its formal offer following a third EC consultation with airline competitors. The discussions on Friday (July 31) centred on the results of the EC’s market test to determine whether competition in the European market was safeguarded.

“After talks earlier today about the results of this week’s market test, Lufthansa has put forward further improved remedies to address the competition concerns raised in this case,” EC competition commissioner Neelie Kroes said in a statement.

“The draft decision will be submitted to the Advisory Committee of the Member States and a final proposal will be presented, for adoption, to the College of Commissioners as soon as possible.”

The EC’s month-long investigation into the deal now appears to be nearing an end with the decision made to advance the proposal to the Advisory Committee. The EC said it could make a quick decision if Lufthansa makes acceptable concessions on routes where competition was a concern.

The Committee, having only an advisory role in the process, is expected to back Ms Kroes’ proposal. The Austrian Takeover Commission approved Lufthansa’s request to extend its self-imposed deadline until August 31 last Friday.

But a final decision could now be made within two weeks. Last week details of its formal offer were made public after the Dow Jones newswire claimed to have seen an EC document.

The questionnaire, part of the EC’s market test, was sent to Lufthansa’s competitors to gauge competition concerns. Lufthansa is understood to have offered to give up lucrative slots on routes between Vienna and key European cities. Three daily flights to Stuttgart and three to Cologne could be freed up as part of the deal. Five flights a day to Frankfurt and up to four flights on Munich and Brussels routes may also be given up by Lufthansa.

The document said that the slots would be offered free to other airlines and any that take up the slots may participate in Lufthansa’s frequent flyer programme. Lufthansa is understood to have offered priority to airlines that are not fellow Star Alliance members. Austrian budget carrier Niki, Slovakia’s SkyEurope and Slovenia’s Adria Airways have been singled out as being interested in the routes.

A Lufthansa spokesperson told ABTN the airline was confident of reaching an agreement with the EC. Lufthansa’s previous package of concessions, submitted earlier this month, was quickly rejected by the EC which said further concessions had to be made.

If Lufthansa’s latest offer is rejected, a decision on the EC’s probe into the deal may not be made until November 6. Lufthansa has indicated that it could walk away from the deal if concessions made the takeover “uneconomical”.

Austrian Airlines has warned that it would need a €1bn cash boost should the deal with Lufthansa fall through, twice the €500m grant promised by the Austrian Government.

Austrian Airlines recently announced it was cutting around 1,000 jobs by mid-2010 to help make savings of €200m by 2012. The struggling airline admitted that cuts had been made this year in the hope that the EC would approve its merger with Lufthansa.

Last month the EC began a second investigation into the takeover, citing concerns that competition could be reduced on routes between Vienna other European cities.

Under the proposed deal Lufthansa agreed to pay the Austrian government €366,268 for its 41.6 per cent stake in its national airline. The second part of the agreement was that the Austrian state received a “debtor warrant” from Lufthansa which might lead to additional payments. The last element was that the Austrian government paid Lufthansa €500m for a “capital increase” in Austrian Airlines.

Lufthansa’s share offer for Austrian was approved by 85 per cent of the shareholders, above the 75 per cent threshold needed under the takeover terms.

The Commission said it was still considering “state support for Austrian Airlines in the framework of a separate investigation under EC Treaty state aid rules.”

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Report by Andrew Gough

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