The EU Commission has cleared the path for Lufthansa to purchase a 41% minority stake in Italian carrier ITA Airways after concluding an in-depth investigation of the proposed transaction.
The EU Commission’s competition watchdog signed off on the deal on July 3, 2024, after Lufthansa agreed to a number of conditions and remedies.
Lufthansa Group will purchase the remaining shares with a capital contribution of 325 million euros, which was already agreed in May 2023.
“The approval from Brussels is excellent news for ITA Airways and Lufthansa and especially for all passengers flying to and from Italy. We look forward to welcoming ITA Airways and its outstanding employees as a new member of our airline family very soon. The decision is also a clear signal for strong air traffic in Europe, which can successfully assert itself in global competition,” said Carsten Spohr, Chief Executive Officer of Deutsche Lufthansa Group.
The new agreement was also welcomed by the Italian Ministry of Economy and Finance (MEF) and ITA Airways with the transaction expected to be finalized in the during the last months of the year.
The EU said there must be “full compliance” with the remedies and approval given by other competition authorities outside the EU before the deal is finalized.
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.
What were the EU Commission’s concerns?
In its report the EU said that Lufthansa and ITA are to a “significant extent complementary” as they operate from different hubs in Central Europe and Italy, respectively.
During its investigation, the EU turned to rival airlines, airports, business customers, consumer and passenger associations to gather information.
The commission was concerned the agreement could reduce competition on a number of short-haul routes connecting Italy with countries in Central Europe, where Lufthansa and ITA are already rivals or could be in the future.
There was also concern regarding competition on long haul routes between Italy and the US and Canada, as ITA would no longer be a competitor airline to Lufthansa and its joint venture partners United Airlines and Air Canada.
The commission also expressed worries that the agreement could have “created or strengthened” ITA’s dominance at Milan Linate Airport (LIN) at the detriment of its rival airlines
The remedies and conditions accepted by the EU
Lufthansa and the MEF submitted a remedy package to the EU to address the commission’s concerns.
These included making “available to one or two rival airlines the necessary assets to enable them to start nonstop flights between Rome or Milan and certain airports in Central Europe”.
Lufthansa and the MEF would also need to ensure that one rival airline has access to ITA’s domestic network to offer indirect connections between certain airports in Central Europe and certain Italian cities other than Rome and Milan.
To address long haul concerns, Lufthansa and ITA would “enter into agreements with rivals to improve their competitiveness on the long-haul routes of concern, for instance through interlining agreements or slot swaps”.
AT LIN, Lufthansa and MEF will transfer take-off and landing slots to a competitor on short-haul routes.
Lufthansa and the MEF can only implement the transaction once a suitable airline is found and approved by the commission to takeover the short-haul, long-haul and Milan Linate commitments.
Until the agreement is finalized, Lufthansa and ITA will remain rivals.
“Despite the comprehensive and far-reaching concessions, the investment in ITA Airways strengthens the 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,” Spohr added.
On the EU decision, Margrethe Vestager, the Executive Vice-President in charge of competition policy at the commission, said that it was “very important to preserve competition in the sector”.
“We needed to prevent that passengers end up paying more or end up with fewer and lower quality air transport services on certain routes in and out of Italy. The package of remedies proposed by Lufthansa and the MEF on this cross-border deal fully addresses our competition concerns by ensuring that a sufficient level of competitive pressure remains on all relevant routes,” Vestager added.