Austrian Airlines for Sale

August 21, 2008, 5:41 AM

The Austrian government has decided to sell its share of Austrian Airlines and has published advertisements in the financial press offering its 42.75-percent share of the flag carrier. The government has attached a number of conditions to the sale, including an obligation to maintain Vienna as a hub, to maintain the name Austrian Airlines and to leave a minority share of 25 percent of the total stock capital in Austrian hands.

Apart from the government’s participation through state-owned investment agency OIAG, national institutional investors hold 10.2 percent of Austrian Airlines; floating stock constitutes the remainder. The Austrian Group fully owns the regional subsidiary Austrian Arrows and holiday charter line Lauda Air, as well as a 22.5-percent share in Ukraine International Airlines. The group operates a fleet of just over 100 airliners.

Austrian announced a loss of nearly €50 million ($74 million) for the first half of this year and expects another loss of €70 million ($103 million) to €90 million ($133 million) for the second half. Analyzing a situation marked by an economic slowdown paired with soaring fuel prices, the board of directors concluded that the airline either needs a strong partner or would have to re-duce the scope of its operations, mainly in the long-haul sector. “The preferred solution is a merger with a strong airline partner,” said CEO Alfred Oetsch.

OIAG has charged investment banker Merrill Lynch with finding a suitable partner. The majority of the board members would reportedly prefer a partnership with Lufthansa. The acquisition of Austrian would allow the German carrier, together with its Swiss subsidiary, to become the leading airline in a territory of 110 million inhabitants, with major hubs in Frankfurt, Munich, Zurich and Vienna. However, Lufthansa has in the past shown reluctance to bail out ailing airlines, unless a return to profit seemed possible within a short period. Other reportedly interested potential partners include Air France-KLM and more exotic candidates such as Aeroflot and Turkish Airlines.

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