The European Commission has cleared Lufthansa Group's proposed EUR325 million euro (USD353 million) bid for a 41% stake in Italy's state-owned ITA Airways (AZ, Rome Fiumicino), subject to "full compliance with remedies" offered by the Lufthansa parent and the Italian Ministry of Economy and Finance (MEF).
The decision follows an in-depth investigation of the proposed transaction by the commission, which initially expressed concerns the merger could harm competition on certain short-haul routes linking Italy with countries in Central Europe, as well as on long-haul routes between Italy and the United States, Canada, and Japan, and could bolster ITA’s dominant position at Milan Linate. This led to a revised set of commitments the parties submitted to allay the concerns.
"These commitments fully address the competition concerns identified by the Commission. Therefore, the Commission concluded that the transaction, as modified by the commitments, would no longer raise competition concerns. The decision is conditional upon full compliance with the commitments. Under supervision of the Commission, an independent trustee will monitor their implementation," the authority said on July 3.
The remedy package includes:
- commitments for short-haul routes: Lufthansa and the MEF will make available to one or two rival airlines the necessary "assets" to enable them to start non-stop flights between Rome or Milan and some airports in Central Europe. The benefiting airlines would need to operate on those routes for a certain minimum period. Lufthansa and the MEF would also ensure that one of these rival airlines have access to ITA's domestic network to offer indirect connections between airports in Central Europe and Italian cities other than Rome and Milan;
- commitments for long-haul routes: The merged company would enter into agreements with rivals to improve competitiveness on "long-haul routes of concern", for instance through interlining or slot swaps. This would lead to more frequencies of nonstop flights and/or improved connections for one-stop flights on each of the routes. In its assessment, the European Commission said it took into account the fact that the MEF would retain a controlling stake in ITA after the transaction and would continue to have incentives for ITA to compete against Lufthansa's joint venture partners in North America, at least until ITA is integrated into the joint venture;
- commitments for Milan Linate: Lufthansa and MEF would transfer take-off and landing slots at Linate to the benefiting carriers for the short-haul routes. The number of slots to be divested exceeds what was necessary to operate the short-haul routes as well as the number of slots that the transaction would have added to ITA's portfolio. This would allow the benefiting airlines to establish a sustainable base at Linate and potentially offer their own one-stop connections between Italy and Central Europe.
Lufthansa Group and the MEF may only implement the transaction following the commission's approval of suitable airlines for each of the short-haul, long-haul, and Linate commitments. The antitrust authority said it would assess the suitability of the benefiting airlines through a separate buyer approval procedure.
Lufthansa Group, the MEF, and ITA Airways welcomed the approval. Lufthansa said the transaction was expected to close in the fourth quarter of 2024 by way of the EUR325 million capital increase agreed in May 2023. "This requires both the prior implementation of the remedies negotiated with the EU Commission and the approval of other competition authorities outside the EU. Options for the acquisition of the remaining shares in ITA Airways have been agreed between Lufthansa Group and MEF and can be exercised from 2025 at the earliest," it said.
Lufthansa Group CEO Carsten Spohr said the regulatory approval would allow the group and ITA to start cooperation on the commercial and operational levels immediately on closing the transaction. Until that time, both companies will continue to operate independently and competitively.
Following the transaction, ITA Airways will join Lufthansa Group as its fifth integrated network airline, retaining its brand identity but benefiting from the group's global sales, loyalty programme, and aircraft and fuel procurement. This strategic move is aimed at enhancing ITA's economic position, making Italy the group's fifth "home market" and its second-largest revenue market after Germany and the USA. Rome Fiumicino will become Lufthansa Group's sixth and southernmost hub. ITA Airways will also join Star Alliance in the near future.
"The acquisition of ITA Airways strengthens the internationalisation of Lufthansa Group," commented Spohr. "Despite the comprehensive and far-reaching concessions, the investment in ITA Airways strengthens Lufthansa Group's position in global competition. We will make ITA Airways a strong and successful part of our company and thus secure its future as an international airline and strong brand."