Air France-KLM, Delta Set to Win Italy's ITA Airways Bid

The biggest prize in the latest round of European airline consolidation, Italy's ITA Airways, is likely to be won by Air France-KLM and Delta Air Lines.

The Italian Ministry of Economy and Finance said Wednesday that it had entered "exclusive negotiations" with private equity firm Certares, as well as Air France-KLM and Delta, in the privatization of ITA. ITA replaced ailing state-owned carrier Alitalia in October 2021. The ministry said the Certares-led consortium's offer was "more in line" with the objectives of the sale than a competing bid from the Lufthansa Group and shipping giant MSC. Certares would provide the initial equity with Air France-KLM and Delta as commercial partners.

Air France-KLM "welcomes" the decision from the Italian government, it said in a statement Wednesday. If their consortium is successful, the group would "become a commercial and operational partner" of ITA. Air France-KLM will not participate in the initial investment but could consider a minority stake in the future, it said.

The announcement comes as somewhat a surprise to those following the ITA deal. Lufthansa and MSC were widely viewed as the preferred bidders prior to the submission of the latest offers on August 22. Details of those bids have not been released, however, Italian daily Corriere Della Serra has reported that the Certares-led group's flexibility over the final shareholdings compared to a set offer from Lufthansa and MSC helped tip the scales.

Both groups value ITA at roughly €950 million ($952 million), according to Corriere Della Serra. The Certares consortium is offering around €600 million for a 55 percent stake, while Lufthansa and MSC sought to control 80 percent of the Italian airline.

“Both parties want to build on our business plan,” ITA CEO Fabio Lazzerini said in July when asked about the privatization. He declined to comment further on the process.

Whatever the reason, keeping ITA in their orbit is a big win for Air France-KLM and Delta. Italy is the fourth largest airline market in the EU after Germany, Spain, and France, and ITA is a key player. While the airline is no longer the largest in the country, that title goes to Ryanair, it does control key slots and other assets at the Milan and Rome airports.

Air France-KLM is scheduled to fly roughly a 8.5 percent of capacity in the EU this year, Diio data show. With ITA, that share rises to more than 9.5 percent. The Lufthansa Group will fly nearly an 11 percent share of capacity.

And in the key transatlantic market between Europe and the U.S., the addition of ITA to Air France-KLM and Delta's joint venture partnership will increase the airlines' share of capacity by more than a point to nearly 29 percent this year, according to Diio. The Lufthansa Group and its partner United have a 25 percent share.

"Our joint offer together with MSC was the better solution for ITA," a Lufthansa spokesperson said. "Apparently, a path is now being chosen that allows for more state influence and does not provide for a complete privatization of ITA," in what appears to be a reference to the flexibility over shareholdings that Corriere Della Serra reported.

The Lufthansa spokesperson added that the group will "continue to expand" in Italy, including with its Italian subsidiary Air Dolomiti. Their comments echoed ones made by group CEO Carsten Spohr earlier in August when he said the Air Dolomiti fleet would grow "by a few aircraft" depending on the ITA decision. The group's Italian subsidiary operates 17 Embraer E195s, according to FlightRadar24.

A Delta spokesperson said the airline "looks forward" to building "closer ties" with ITA.

Italy officially launched the tender to privatize of ITA in February. By that time, Delta and Lufthansa had already begun publicly jockeying for a stake in the Italian airline.