The deadline for applications for the takeover of ITA Airways has passed and the two contenders are now known: Air France-KLM and Lufthansa Group. A decision should be made by the end of the month and an agreement signed by mid September. Let’s look at the forces at work
Certares Management and Air France
The first offer comes from the American investment fund Certares Management, backed by Air France-KLM and Delta Airlines. It is worth 650 million euros and concerns 60% of the capital of the Italian airline.
As a historical partner of the former Alitalia and of Italia today, and as a partner in the Skyteam alliance, it was obvious that Air France KLM could not let ITA go to the competition after having even almost bought it a few years ago if the Berlusconi government hadn’t scuttled the deal at the last minute.
But the Franco-Dutch group obviously does not yet have the means to carry out this operation on its own, unless, having not yet fully repaid the “COVID aid” (contrary to what one might have thought), it is not authorized to take a stake of more than 10%. The bid is therefore really driven by Certares which would take a little less than 50% of the capital, with Air France and Delta sharing 10% of the shares.
There is also another reading: Certares and Delta, as non-European shareholders, cannot hold more than 49% of a European airline. The presence of Air France, even if symbolic, and the fact of leaving 40% of the shares to the Italian government would guarantee ITA a majority European shareholding.
One can even imagine that Air France-KLM is already planning to buy back all or part of Certares’ shares once it is freed from its “COVID constraints”.
In any case, even if the European group is not in the driver’s seat, seeing ITA staying in the Air France-KLM fold is obvious in view of history.
But not everyone sees it that way, starting with the Lufthansa Group.
Lufthansa Group and MSC
The second offer is made by MSC (an Italian shipowner owning MSC Cruises, among others) and Lufthansa and concerns 80% of the capital (60% for MSC, 20% for Lufthansa) for a value of 850 million euros.
While it may seem less obvious than that of Air France-KLM at first glance, it makes no less sense. MSC is an Italian group, which would avoid offending local egos. And although Lufthansa has never been a partner of Alitalia / ITA, unlike Air France, the German group has always been keen on the Italian market and the success of this operation would make it forget the bitter failure of Lufthansa Italiaa brief attempt to gain a foothold in this market through a local subsidiary.
Two offers of different nature
To choose a favorite, it is necessary to understand the nature of these offers. There is not only money involved, there are questions of egos, sensitivities and, in a word, political issues.
As Lufthansa has always stated at the time of the takeover of Alitalia it is not possible for the german group to put a penny in an airline without having full control of its strategy in return in order to manage and (re)structure it as it sees fit, as was done for Swiss, Austrian and Brussels Airlines. The implicit message is “we pay a high price but then leave us alone”. An approach that can be described as “industrial”.
The offer in which Air France participates is more political. The Italian government will keep 40% of the capital, would have the right to appoint the president of the airline and would have a veto right on the strategic decisions of the airline. A good way to “Italianize” the offer in the face of MSC. But we can see that Certares and Air France-KLM play a different game than MSC and Lufthansa.
Indeed, while it is clear that Lufthansa wants to take control to expand its group, it seems more thanAir France KLM does not want to see ITA come under the control of a competitor even if it means having to deal with a complicated governance. The implicit message is “we buy but we promise not to make waves and you will always have your say on the strategy of the airline“.
A risky game for Lufthansa and Air France-KLM
Both airlines are taking risks in this case, but Air France-KLM even more than Lufthansa.
Lufthansa is taking the risk of buying an airline built on the ashes of Alitalia, which we fear has inherited its bad sides and is very difficult to manage.
For Air France-KLM the risk is the same, but with the added possibility that the Italians may have enough influence to make its strategy fail if they do not like it. The Franco-Dutch group is writing a blank check and may find itself at the helm of an unmanageable and unreformable airline. Anyway, once again, all signals seem to say “we don’t want economic success, just to block the way to Lufthansa”. Very, very risky.
An economic or political decision?
What is the best offer for the Italian government? It all depends on the criteria.
Economically speaking, the best offer is that of Lufthansa. Not only because it will bring in more money, but because the German group’s objective is to develop the Rome hub for the Mediterranean.
On the other hand, the Italian government’s perception, which we believe is justified, is that Air France-KLM will use ITA to feed the Roissy hub and therefore invest less in its development. ITA is there to serve Air France and not the other way around.
But there is a strong political dimension, especially since a new government will be appointed at the end of September that could potentially call everything into question, especially if it leans too much towards the nationalists. We have already seen what happened during the Berlusconi era. In this case, the Certares/Air France-KLM approach will spare many susceptibilities and will reassure those who do not want to see a foreign group “bleed” a business they consider as a national heritage.
Lufthansa and Air France-KLM are participating in two takeover bids for ITA Airways with two different perspectives: one industrial, the other more political, which obviously has no other reason than to block the road to the first, even if it means ending up with complicated governance.
None is better than the other in itself: it all depends on whether the choice of the buyer will be based on economic or political criteria.