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Lufthansa to Buy 41 Percent of Italy’s ITA Airways for $348 Million

Edward Russell
May 25th, 2023 at 1:22 PM EDT

An ITA Airways plane in Brussels

The Lufthansa Group has agreed to buy 41 percent of Italy’s state-owned ITA Airways for €325 million ($348 million), the culmination of more than a decade of wrangling to secure a larger piece of the Italian market.

The deal with Italy’s Ministry of Economy and Finance, if approved by European regulators, would cement Lufthansa’s position as the continent’s largest group and give it a key foothold in the large Italian market. The agreement, reached Thursday, includes the option for Lufthansa to take full control of ITA at a later date. The news was first reported Wednesday by the Italian media.

“As part of the Lufthansa Group family, ITA can develop into a sustainable and profitable airline, connecting Italy with Europe and the world. At the same time, this investment will enable us to continue our growth in one of our most important markets,” Lufthansa Group CEO Carsten Spohr said Thursday. He cited ITA’s recent aircraft orders and hub at Rome’s Fiumicino airport as a perfect fit for the group.

Passengers can look forward to commercial cooperation between Lufthansa Group airlines — including its namesake, Austrian Airlines, Brussels Airlines, Eurowings, and Swiss Air — and ITA once the deal closes. ITA will keep its name, as have other members of the group. That cooperation will likely include ITA’s move to the Star Alliance from the SkyTeam Alliance, which its predecessor Alitalia was a member of. Lufthansa has not said whether ITA will join its transatlantic joint venture with Air Canada and United Airlines.

The deal is also the first in what is expected to be a wave of post-pandemic airline consolidation in Europe. Air France-KLM is positioning to acquire TAP Air Portugal, which the Portuguese government is expected to put up for sale later this year. And International Airlines Group, which owns British Airways and Iberia, is seeking regulatory approval of its long-sought takeover of Spain’s Air Europa. The airlines tout the deals as critical to compete in the higher-cost post-pandemic market.

The Air Europa deal will “will enable Iberia’s Madrid hub to compete on equal footing with other European hubs,” IAG CEO Luis Gallego said in February referring to the likes of Air France’s Paris hub and Lufthansa’s Frankfurt hub.

On a smaller scale, the divestitures of certain airport slots and gates by Europe’s legacy carriers as a condition of their Covid relief packages has allowed EasyJet, Ryanair, Vueling, Wizz Air, and other discounters to expand across the continent.

Lufthansa has outlined plans to grow ITA’s Rome hub into a southern gateway for the group, including for Africa and Latin America traffic. Italy is the group’s largest revenue source in Europe outside of its home markets of Austria, Germany, and Switzerland.

“We believe there is growth in Rome, both landside and airside,” Spohr said earlier in May. Landside refers to Fiumicino’s passenger terminals, and airside its runways. Two of the group’s largest hubs, Frankfurt and Zurich, are at capacity, and it has limited expansion opportunities in Munich and Vienna, he added.

Spohr did not comment earlier in May, or in his statement Thursday, on ITA’s losses and those of its predecessor Alitalia. ITA lost a massive €486 million last year on €1.6 billion in revenue citing pandemic travel restrictions, the Ukraine war, and strong U.S. dollar. The Lufthansa Group will face pressure from shareholders to turn around the Italian carrier, and boost its own margins.

Losses at Alitalia were a drag on former shareholders Air France-KLM and Etihad Airways, both of which eventually exited their investments. Lufthansa, for its part, has sought an investment in Italy’s national carrier since at least 2008.

As part of the deal, Italy will invest another €250 million into ITA that, combined with Lufthansa’s investment, will inject nearly €600 million into the loss-making carrier.

The group did not outline a timeline for the deal, citing the necessarily regulatory approvals.

Edward Russell
May 25th, 2023 at 1:22 PM EDT

Tags: Europe

Photo credit: An ITA Airways plane in Brussels Flickr / Luc Verkuringen

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