Wedding in the balance

Ita Airways, Lufthansa asks for a discount, rejected by the Mef: stalemate in negotiations

Lufthansa proposed to revise the investment downwards. Minister Giorgetti: 'we do not give in to blackmail'. Contracts with EasyJet for Linate, AirFrance and British on routes to North America still not sent to Brussels

by Giorgio Pogliotti

5 November 2024

4' min read

Key points

The quantification of the discount claim.
Contracts with competitors
Next steps

4' min read

New twist between Lufthansa and Ita Airways. The German group has asked for a downward revision of the investment price of the second tranche of 604 million euro of the reserved capital increase, receiving a sharp 'no' from the Mef (Ita's sole shareholder): 'we do not give in to blackmail, we are not prepared to sell off the company,' an angry Minister Giorgetti is reported to have replied, with the support of Palazzo Chigi. Thus, in the absence of an agreement, the entire operation remains on standby after about a year and a half of negotiations.

The request emerged as the Ministry of Economy and Lufthansa on Monday were working to send the European Commission the binding contracts signed with competing airlines to meet the conditions set by Brussels to ensure competition in air transport. At the beginning of July, the EU's Competition DG had given the go-ahead for a €325 million capital increase through the acquisition of 41 per cent of Ita Airways by Lufthansa, on condition that contracts were signed with other airlines in an anti-monopoly context. The non-peremptory deadline set by Brussels was 4 November for the signing of the contracts - a deadline still not met in the absence of the Mef's signature - but there is time for delivery until 11 November.

The quantification of the discount claim

The German group has asked for a discount on the second tranche of the reserved capital increase, invoking a clause in the agreement that links the disbursement to the value of the company. How much is this discount worth? Sources following the dossier close to Frankfurt calculate it at around EUR 10 million. According to government estimates, however, the range of the discount could be as high as 50-200 million, for two reasons: the Germans have taken the fourth quarter of 2024 (the last quarter of the year is usually a lean period for airlines, instead of June revenues) as a reference for setting the company's value, and they have also asked for investments made, for example for the renewal of the air fleet, to be discounted from the price.

This request was considered unacceptable by the Mef, to Minister Giancarlo Giorgetti, it sounded like a thunderbolt, a betrayal of agreements and trust. It should be noted that the request for a downward revision does not concern the first tranche of the 325 million investment for the Ita Airways capital increase, but the 604 million that the Mef should collect.

In replying to the Italian government's accusations, Lufthansa recalled that 'the Lufthansa Group is complying with the 2023 agreement with the Italian Ministry of Economy and Finance for the acquisition of an initial 41% stake in Ita Airways', and that 'the company has signed the necessary corrective package within the agreed deadline'.

Contracts with competitors

Let's take a detailed look at what the signed contracts provide for (the Mef's signature is still missing), to comply with the European Commission's requests to release 15 pairs of daily slots at Linate to competitors, and to allow a competing carrier to enter a dozen intra-European routes that the two companies cover directly (among these are the routes from Rome to Frankfurt, Munich, Zurich, Brussels and from Linate to Frankfurt and Vienna). In pole position as candidate companies were EasyJet and and Volotea, but EasyJet was chosen. For the connections between Fiumicino and Washington, San Francisco and Toronto, between the two options - to allow the entry of a competing carrier with direct flights or to facilitate (also through federation) indirect connections from other European hubs, provided that there is no difference of more than two hours with respect to the duration of the connection ensured by the two companies - the second was chosen. The two companies identified are Air France and British Airways.

Next steps

According to the agreement reached at the end of June 2023, after entering with a minority share in the capital of Ita Airways, the next two steps are expected at the end of 2025, because Lufthansa has committed to take over a further 49% of the capital, and the final step is expected between 2028 and 2029 with the acquisition of the remaining 10% for a further 604 million: in the end, the total investment should amount to EUR 829 million, a figure precisely contested by Lufthansa.

The procedure envisaged that after the contracts had been sent, the European Commission's opinion on the binding agreements would have to be awaited, and then, once the go-ahead had been given, the transaction would have been closed, which was expected by the end of the year, with the disbursement of EUR 325 million by Lufthansa and its entry into the capital with a 41% share. At that point, an extraordinary shareholders' meeting of Ita Airways would be convened to appoint the five-member board of directors, with two representatives of Lufthansa (including the CEO) and three representatives of the Ministry of Finance. But the conditional is a must at this point.

Giorgio PogliottiRedattore esperto
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