Prospective takeover brings end to Italian flag carrier’s long struggle. Ian Taylor reports
Lufthansa’s deal with the Italian government in late May leaves the group poised to take joint control of ITA Airways with a view to a takeover that would end a near two-decade struggle to retain Italian ownership of the country’s flag carrier.
There is an irony in that it was the nationalist administration of prime minister Georgia Meloni which agreed to sell ITA to a German group after successive technocrat-led Italian governments sought to keep predecessor Alitalia in majority Italian ownership.
The transaction will see Lufthansa Group pay €325 million for a 41% stake in ITA, with the option of a takeover “at a later date”.
The Italian ministry of finance and economy will inject €250 million into ITA and retain 59% and a seat on the board for now, with Lufthansa appointing the chair and a second board member and ITA retaining the remaining two seats.
But Lufthansa will shape ITA’s operations once the transaction completes and group chief executive Carsten Spohr made clear: “We have an option of a full takeover [through] a predefined mechanism. The terms ensure we will not overpay.
“We staggered the risk with this investment.”
In the meantime, he said: “We won’t consolidate ITA into the Lufthansa Group accounts.”
We did not invest in Alitalia because we did not believe it would be a good investment. ITA has none of the legacy issues of Alitalia
Spohr described Italy as “a key market” and ITA as “a perfect fit” for the group which comprises Swiss, Austrian Airlines, Brussels Airlines and Eurowings alongside Lufthansa.
He noted: “ITA is a new airline, fully restructured, a lean start-up. We have the resources to turn it into an international carrier.
“If the transaction completes within 2023 and we fully integrate joint operations within six months, it can be profitable in 2025. Then we can look at a full takeover, with the timing and cost dependent on business performance.”
The deal might be expected to attract regulatory scrutiny and could be challenged by rival carriers, but Spohr told analysts the deal “has been cleared by the EC”.
Pointing out the benefits of the transaction, he said: “The Italian aviation market is the third largest in the EU. Italy is already our most important market after our home markets and the US. We operate 1,000 flights a week to and from Italy [and] we serve more airports in Italy than we do in Germany already.”
Yet Spohr noted most of ITA’s traffic is short haul and “the long-haul market [in Italy] is underserved”.
The group plans to increase long-haul operations from Rome Fiumicino airport with feeder traffic from across its network and build premium traffic to Milan which Spohr noted “has the number-three catchment area in Europe after London and Paris”.
He argued: “Normally, airlines start with their strongest catchment area and expand. We just acquired our largest catchment area.
ITA operates 66 aircraft and carried 10.1 million passengers last year, losing €338 million.
It might be a new carrier but its fleet is old – 55 of its 66 aircraft are ‘old generation’ fuel guzzlers, with an average 16-17 years spent flying mostly in Alitalia colours.
The airline was founded in November 2020 and launched in October 2021, the month Alitalia ceased flying, when the Italian government transferred Alitalia’s fleet and operations to ITA but ditched most of the staff, pension obligations and debt.
The government had nationalised Alitalia during the pandemic in 2020, but Covid-19 proved only the final straw.
Alitalia was bankrupt in 2008 – having lost money for years – when it was sold to a group of Italian investors close to then prime minister Silvio Berlusconi, amid the fall-out from the global financial crisis.
By 2013 Alitalia was in bankruptcy again, only to be bailed by Etihad Airways taking a 49% stake.
The carrier re-entered administration in 2017 when Etihad withdrew support amid financial issues of its own.
Between then and 2021, easyJet, Ryanair, Delta Air Lines, Air France-KLM, China Eastern Airlines, the Italian state railway and cruise line MSC together with Lufthansa all at various points expressed interest in a partial takeover. But until Alitalia’s demise and ITA’s creation, no deal proved possible.
Spohr noted: “We did not invest in Alitalia because we did not believe it would be a good investment. ITA has none of the legacy issues of Alitalia.”
What it does have an order book for new aircraft that will increase the fleet to 94 by 2027, two-thirds of them new-generation aircraft, and take its long-haul fleet to 24.
Spohr explained: “ITA has secured aircraft delivery slots. The prices were secured when the aircraft market was not as hot as now. It brings a nice order book [and] once we own the company we can move aircraft orders anywhere around the group.”
He hailed the size of the Italian market and “strategic importance” of the deal and said: “Integration into our global distribution channels will allow better revenue and pricing management. It is a perfect addition.”
In case of doubt, Spohr added: “Profit depends on scale and combined operations. The strong players are getting stronger. For the smaller ones, it becomes more difficult.”
More: Lufthansa pays €325m for minority stake in Italy’s ITA Airways
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