As had been widely expected, Brussels has opted to open an in-depth investigation into the proposed acquisition by Lufthansa (LH, Frankfurt International) of stake in ITA Airways (AZ, Rome Fiumicino).

The European Commission warned in a statement released on January 23 that the deal - in which the German carrier aims to acquire a 41% stake in state-owned ITA for EUR325 million euros (USD355 million) via a capital increase - “may reduce competition in the market for passenger air transport services on several short-haul and long-haul routes in and out of Italy.”

Its investigation (case number M.11071) will assess these concerns, a process that will take 90 working days, until June 6, by which time it pledged to make a decision. It stressed that the opening of the probe “does not prejudge the outcome.”

Lufthansa and ITA “are strong and close competitors on certain routes,” it pointed out, and in particular, “the transaction may reduce competition on short-haul routes connecting Italy with countries in Central Europe.” On some of these, the two airlines “compete head-to-head with non-stop connections with only limited competition, primarily from low-cost carriers such as Ryanair,” which tends to operate from more remote airports.

The EU antitrust watchdog will also examine routes where one of the parties is already offering services and the other is expected to enter soon, as well as sectors where one or both “has a convenient one-stop connection and where non-stop connections are limited or only offered by the other party.”

The investigation will further look at long-haul routes between Italy and North America and whether the activities of ITA, Lufthansa, and its joint venture partners United Airlines and Air Canada should be seen as those of a single entity after the merger.

The deal could harm competition on several routes between Italy and the US, Canada, India, and Japan, due to the existing close competition between ITA and Lufthansa or Lufthansa’s joint venture partners - “through non-stop or convenient one-stop connections and convenient airport locations and due to potentially limited competition from other airlines with attractive connections.”

The authority also suggested that the planned transaction “could create or strengthen ITA’s dominant position” at Milan Linate.

On a visit to Italy on January 23, Ryanair CEO Michael O'Leary said that airport slots Lufthansa and ITA may be forced to give up could allow his airline to consolidate its already market-leading position in the country. Ryanair is especially interested in expanding at Rome Fiumicino, he said.

“To the extent that slots are freed up in Linate, we believe easyJet and Wizz Air will move aircraft from Milan Malpensa to Linate to take up those slots, and that will create more room for us to grow in Malpensa,” he added, as quoted by Reuters. “Where ITA isn’t growing, Ryanair will grow instead.”

The European Commission summarised in its statement that the transaction was notified about it on November 30 last year and that on January 8 Lufthansa submitted commitments to address some preliminary concerns. “However, these commitments were insufficient, in terms of both scope and effectiveness, to clearly dismiss the Commission's preliminary concerns. The Commission therefore did not test them with market participants.”