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Lufthansa, MSC Group Interested In Majority Stake of ITA Airways
After years of being eschewed like a pariah by all major players in the commercial aviation arena, ITA Airways s.p.a — the airline that was born from the ashes of chronically loss-making Alitalia — has received an expression of interest for ownership of a majority stake by two large companies.
“The Company announces that today it has received an Expression of Interest from the MSC Group and Lufthansa to acquire the majority of ITA Airways,” ITA Airways said in a statement. “The MSC Group has agreed with Lufthansa its participation in the partnership on terms to be defined during the Due Diligence”.
Mediterranean Shipping Company (MSC) Group is a Swiss-Italian international shipping line operating both passenger and cargo services. Its cargo division includes the shipping company MSC operating 570 container vessels, while the passenger division encompasses MSC Cruises and ferry companies GNV and SNAV providing services across the Mediterranean. It employs over 100,000 people.
The Lufthansa Group would be the industrial partner providing the airline-specific know-how to make ITA Airways a significant player in the increasingly crowded European skies.
MSC Group is said to be interested in establishing synergies with ITA Airways in the cargo area and “both MSC and Lufthansa have expressed the wish that the Italian Government maintains a minority stake in the Company. Furthermore, the MSC Group and Lufthansa have requested 90 days of exclusivity to work on this Expression of Interest”, continues the note.
ITA Airways is currently half the size of what the old Alitalia used to be, and its presence is currently focused on domestic and short-haul services from Rome Fiumicino and Milan Linate, with long-haul services being limited to a handful of routes mainly to North America — due to a reduced long-haul fleet.
Now that the old debts have been offloaded to Italian taxpayers through the Alitalia bankruptcy procedure, staff levels have been significantly reduced with a new more competitive contract in place for all remaining employees. As a result, the airline suddenly became an interesting asset, after several rounds of restructuring and bankruptcy failed to attract viable suitors, beginning with the extraordinary administration that started in May 2017.
Change of Airline Alliance
Should the acquisition deal go ahead, ITA Airways would most likely need to exit the SkyTeam Alliance it has recently joined, although just on a temporary one-year basis, and enter the Star Alliance in order to align with Lufthansa.
According to the Italian newspaper Il Correre della Sera, there should be no hurdles to the acquisition imposed by the European Commission, since Lufthansa has already repaid 75% of the 6 billion Euros ($6.81 billion) loan it had received from the Government as a subsidy to help the company through the COVID-19 pandemic. “That loan was approved subject to specific conditions, one of them being a ban on acquisitions,” said a spokesperson from the European Union. “Lufthansa remains subordinate to some of the other conditions imposed, but since most of the loan has been repaid the ban on acquisitions can be removed”.
Lufthansa already has a very strong presence in Northern Italy where it funnels passengers through its Frankfurt, Germany and Munich hubs for its long-haul flights, and it also operates Air Dolomiti — the carrier’s 100%-owned subsidiary — who focuses on regional flights from its base in Verona, Italy but also using its Embraer 190s to perform feeder flights into Munich.
The Lufthansa Group also owns and operates SWISS and Brussels Airlines which both have a significant presence in Italy.
It is unlikely that there are going to be issues with traffic rights, given that MSC is an Italian corporation, despite its headquarters in Geneva, Switzerland, and Lufthansa is an E.U. carrier. There may be some concessions that ITA Airways and Lufthansa will have to make in terms of slots at Rome’s Fiumicino Airport, Frankfurt, Germany’s Airport and possibly the heavily-constrained Milan’s Linate Airport in order to convince the European Commission that the merger is not going to stifle competition on some routes.
Although other carriers have repeatedly passed at the opportunity of buying any kind of stake in the Italian flag carrier, it will be interesting to see how Air France-KLM and Delta — the main carriers in the SkyTeam alliance — will react to the loss of ITA Airways as a member but most importantly a significant increase of Lufthansa’s footprint in the Italian market.
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