Lufthansa made sure its presence on the European consolidation scene was strongly felt this week with the news that it is in talks to acquire a 45% stake in Brussels Airlines parent company SN Airholding, and that it is interested in acquiring a near 43% stake in Austrian Airlines.
Negotiations are ongoing between Lufthansa and SN Airholding, and the intention is for Brussels Airlines to operate as an independent carrier within the Lufthansa group. Lufthansa plans to initially acquire a 45% stake in SN Airholding with an option to acquire the remaining 55% after two years.
Uwe Weinreich, an analyst with Munich-based Hypovereinsbank, says Lufthansa's planned Belgian investment is "a limited risk investment with some potential for improvements", which represents "a step in the right direction".
ABN Amro analyst Andrew Lobbenberg points out that Swissair, the predecessor to Lufthansa subsidiary Swiss International Air Lines, "owned [Brussels Airlines predecessor] Sabena, more or less, before the collapse of the SAir Group, and so having the two successor airlines reunited under Lufthansa has a certain symmetry".
He adds that Brussels is "a reasonably attractive short-haul business market, given the high volume of government traffic to and from the European Union". Lobbenberg also points out the advantages of Brussels Airlines' African network to Lufthansa: "Brussels Airlines has a small but useful network to West Africa, which under the wing of Lufthansa would offer a more credible challenge to Air France's dominance of that region, which we believe is highly profitable for it."
Brussels Airlines vice-president alliances and codeshares Peter Cornillie told Airline Business earlier this month that the carrier planned to join either the Star Alliance or oneworld, and that it would make its decision by the end of this year. This latest development with Lufthansa suggests that Star will win out.
Lufthansa also said this week that it is interested in acquiring the 42.75% stake in Austrian Airlines, which is being sold by Austrian state holding company OIAG following the collapse of a deal to sell the stake to Saudi Arabian investor Sheikh Mohamed Bin Issa Al Jaber.
Lufthansa's interest in Austrian is a move to "protect its market, expand in Eastern Europe and not let another competitor in", says Weinreich. However, he does not believe the German carrier's recent acquisition moves are all about size or market share: "Lufthansa is not looking for size, it's looking for promising markets. Brussels Airlines couldn't survive with its limited aircraft fleet and cost structure. Like Austrian, they need a bigger partner."
The fact that Austrian expects to incur a net loss of between €70 million ($103 million) and €90 million in the 2008 financial year has not deterred Lufthansa, and Weinreich points out that the German carrier is experienced at turning around loss-making airlines.
If all of Lufthansa's planned acquisitions come off, the carrier would solidify its position as a major European player with a strong position at hub airports in Frankfurt, Munich, Zurich, Brussels and Vienna.
And it is not only consolidation with carriers from other European countries that Lufthansa is getting involved in - it is also very active in its own back yard. Talks are still ongoing over merging the activities of German leisure carrier TUIfly with Germanwings, a low-cost subsidiary of Eurowings, of which Lufthansa holds a 49% stake as well as 99.9% of the voting rights.
Tour operator TUI Travel this week revealed that these merger talks had been extended to include Condor, the German leisure carrier that was previously a takeover target of Air Berlin. However, Lobbenberg does not hold out much hope for a speedy deal: "Lufthansa's efforts to combine Germanwings with TUIfly have made very slow progress and Lufthansa has consistently stressed the complexity of the deal," he says.
"Folding Condor into the potential combination would make the fleet, network and labour issues more complex, while the competition policy issues would also be more challenging."
Source: Airline Business
