The Alitalia / ITA psychodrama may finally be over, with the announcement that Lufthansa has taken a stake in the company, which should lead to a full takeover in the next few years. But not everyone is so enthusiastic, especially in Germany.
It’s impossible to remember how many articles we’ve written about the ups and downs of Alitalia and its successor ITA Airways, to the point where we began to think that this comedia dell’arte would never end. Air France-KLM, Delta, Etihad, EasyJet…between quickly aborted marriages and unions that never saw the light of day, there was no shortage of suitors, and in the absence of agreement each time, we ended up thinking that the Italian airline would end up living and dying alone.
However, after a lengthy negotiation process, Lufthansa ended up taking a 40% stake in ITA, while waiting for something better.
Lufthansa takes 40% of ITA, takeover will wait
First of all, to say that Lufthansa Group is taking over ITA is to overstate the case. The German group will take a 40% stake in the airline for €325 million via a capital increase, and will acquire the remainder when it becomes profitable. Given Alitalia’s past and the legitimate doubts it raises about ITA’s governance, this may well be a wise precaution, and there’s nothing to say that in 2 or 3 years’ time we won’t once again be asking ourselves whether the airline can survive!
A clever way for Lufthansa to pay to see even if it may backfire: the future purchase price of the shares will be based on ITA’s performance at that time, so if the Italian airline recovers, Lufthansa will pay more than the price per share it paid for the stake. But certainly less than buying out 100% right away, only to realize in 3 years that it’s impossible to get anything out of the airline.
However, this operation is subject to approval by the European authorities. Lufthansa hopes to obtain approval as quickly as possible, in order to integrate ITA into the Lufthansa Group (Lufthansa, Swiss, Brussels Airlines, Austrian, Eurowings), develop commercial synergies and integrate it into its frequent flyer program. A change of alliance, from Skyteam to Star Alliance, is also hardly in doubt, even if no mention has been made of it, and we’ll certainly have to wait a little longer.
Italian unions happy, German less so
The news was warmly welcomed by the Italian unions, who had indeed feared for the airline’s survival. What’s more, the airline’s expected growth means they can also look forward to the creation of new jobs.
The same cannot be said of Germany, where the trade unions are more concerned that ITA will drag down the Group’s performance and affect its economic success. They point out that the Group’s airlines have to work together, and that if some of them (the Italians) pull the rug out too far or don’t make the necessary efforts, the result will be a race to the bottom.
The stock market is also taking a wait-and-see attitude: Lufthansa’s share price has hardly moved at all, reflecting, if not doubts, at least a wait-and-see attitude.
For its part, management is reassuring: Italy is the group’s second most important destination after the United States, the operation was financed out of equity without increasing debt, and it is confident that the EU will not force the abandonment of too many flight slots in the name of competition.
Lufthansa has just taken a 40% stake in ITA, a preliminary to a full takeover. While management sees this as a successful strategic operation, many doubts remain as to ITA’s ability to become profitable and manageable.
Although the Lufthansa Group has been a success to date, the cultural context of the airlines concerned was relatively compatible, and there is no guarantee that the same methods will lead to the same results with a Latin airline.
What do you think?
A good deal for Lufthansa? For ITA? Do you think this airline will ever become profitable and manageable again, or is it doomed to failure?