Lufthansa makes play to acquire stake in ITA Airways

Lufthansa says it aims to buy a minority stake in ITA Airways, seeking to advance an industry consolidation that would give the German airline a stronger foothold in a major European aviation market.

The German carrier didn’t disclose financial details, or lay out the size of the stake it wishes to buy in the successor of Alitalia. Lufthansa wants to buy as much as 40% of ITA in an initial step and subject to negotiations, according to people familiar with the talks, asking not to be identified discussing private deliberations.

The airline said in a statement that it submitted a bid to Italy’s Economy and Finance Ministry, with a view to buying the remaining shares “at a later date”.

Further talks will primarily focus on the form of a possible equity investment, the commercial and operational integration of ITA into Lufthansa, the airline said.

A firm deal would allow Lufthansa to expand in one of Europe’s key markets, while charting a course for Rome to rid itself of an asset that has soaked up billions of euros in state support.

A strategic move

While ITA and the erstwhile Alitalia have been notoriously unprofitable, Lufthansa would gain access to lucrative trans-Atlantic travel, while preventing a rival from building up a base in northern Italy that might soak up passengers from Lufthansa’s own Munich hub.

“The offer from Lufthansa was widely expected, but in our view sends a sub-optimal message on capital allocation: yes, Italy is an important, attractive market - but the successful restructuring of ITA into a sustainably profitable airline is far from assured,” Bernstein analysts Alex Irving and Clementine Flinois said in a note.

ITA would add to a group of national carriers already under the Lufthansa umbrella, including Swiss and Austrian Airlines.

Lufthansa Chief Executive Officer Carsten Spohr, a trained pilot who has run the company for close to a decade, has built the company into Europe’s biggest airline group, competing with the other two major conglomerates — British Airways parent IAG SA and Air France-KLM — as well as the trio of budget specialists: Ryanair, EasyJet and Wizz Air.

The planned purchase removes one more independent player from the European landscape, leaving Portugal’s state-owned airline TAP Air Portugal and Nordic carrier Scandinavian Airlines as possible takeover targets. ITA had previously been at the center of a multi-company bidding contest that at one time involved MSC, Delta Air Lines, Air France-KLM and private equity firm Certares Management LLC.

Support from Rome

Aeroporti di Roma CEO Marco Troncone has previously endorsed Lufthansa’s plans, saying “we are very positive about the Lufthansa business model. The company has extensive experience in dealing with post-crisis carriers and managing multiple hubs.”

Troncone said that a Lufthansa-ITA combination would bolster Rome Fiumicino’s status as a long-haul hub from the Mediterranean region to North America, Asia and Middle East, while also boosting domestic markets.

Rome’s location in central Italy puts it beyond the immediate catchment areas of Lufthansa’s Munich hub, which has competed with more northerly airports including those in Milan.

ITA needs to team up with a larger carrier to boost revenue, while Fiumicino would benefit from being Lufthansa’s new interchange for southern Europe.

Rome as southern European hub

“When it comes to investments, we are only interested in restructured airlines, and we believe ITA is one of them” Lufthansa CEO Carsten Spohr told a news conference in May 2022.

Spohr said Italy was already Lufthansa's most important market in Europe, and globally its second largest after the United States, as it is the biggest intercontinental carrier for both Italians and people travelling to the country from abroad.

“Rome could play a very important role within Lufthansa,” he added, serving as a hub in southern Europe to complement Lufthansa's existing strong network in the north.

Additional reporting by David Flynn