Lufthansa Eyes TAP Acquisition As Talks Continue Over ITA Deal

 - March 3, 2023, 10:32 AM
With its balance sheet bolstered, Lufthansa is considering possible acquisition's of Portuguese airline TAP and Italy's ITA Airways. (Image: Lufthansa)

Lufthansa has joined Air France KLM and International Airlines Group (IAG) in rebounding to profitability in 2022 after two years of heavy losses resulting from the Covid pandemic. Like its European rivals, the German flagcarrier is also eyeing a possible takeover of TAP Air Portugal, with the Portuguese government intending to re-privatize at least half of TAP's share capital and having appointed U.S. investment banking advisory firm Evercore as an advisor for the transaction.

At the same time, Lufthansa is engaged in exclusive negotiations with Italy’s Ministry of Economy and Finance to acquire an equity interest in the country’s national airline, ITA Airways (formerly Alitatlia). However, that is not stopping the company to look at other merger and acquisition possibilities.

“The priority for Lufthansa is ITA but, of course, as number one [airline group] in Europe you cannot focus on one take-over candidate only,” group CEO Carsten Spohr told reporters on Friday during the group’s full-year results presentation.

Consolidation can take different forms, he added, including an outright sale but also a bankruptcy or a divestiture for another reason. “I do not shy away from TAP. The two most interesting [mergers and acquisitions] candidates right now are ITA and TAP, but I could give other names too. Whenever a candidate arises, we will keep a close eye on it and show our interest,” Spohr maintained.

Spohr, whose contract to serve as head of the Lufthansa Group has been extended until the end of 2028, declined to give details on the progress of the ITA talks citing the exclusive nature of the negotiations. “I can only say that they are proceeding in a positive and constructive way,” he said. This, he noted, “is not surprising because ITA within the Lufthansa group is not only good for ITA, but also for Lufthansa, for Italy and the Italian economy and European aviation.” The latter, he remarked, is important so airline consolidation in Europe can be on par with the U.S.

Lufthansa intends to initially acquire a minority interest of 40 percent in ITA and “options are also to be agreed to purchase the remaining interests at a later date it would,” according to Lufthansa’s annual report, which was released on March 3.

ITA is lossmaking and also its predecessor airline, Alitalia, has posted far more losses than profits during the course of its 75-year history. Still, Lufthansa CFO Remco Steenbergen believes that his company’s industrial plan for ITA and the Italian carrier’s integration in Lufthansa group’s multi-airline brand and multi-hub strategy will lead to ITA becoming profitable. “We believe the synergies are there to turn it around. This will depend on the agreement we can reach,” he commented. For us, it is important to have a profitable addition.”

Lufthansa group reported a positive adjusted earnings before interest and taxes (EBIT) of €1.5 billion ($1.6 billion) in 2022, compared to €1.7 billion loss in 2021. Revenues almost doubled, to €32.8 billion.  “Lufthansa is back. In just one year, we have achieved an unprecedented financial turnaround,” commented Spohr.

Most of the group’s 2022 profits, however, resulted from a record performance of Lufthansa Cargo and Lufthansa Technik—which posted a €1.6 billion and €511 million adjusted EBIT, respectively—while its passenger airline segment remained in negative territory with an operating loss of €300 million. Brussels Airlines, Eurowings, and Lufthansa posted an operating loss of €74 million €197 million and €466 million leaving Swiss and Austrian Airlines as the only profitable airlines. Swiss recorded a €476 million operating profit and Austrian Airlines €3 million.

The group, which on March 2 topped its widebody order with 10 Airbus A350-1000s, five Airbus A350-900s and seven Boeing 787-9s, operated 72 percent of its pre-crisis passengers capacity. It targets to restore passenger capacity, measured in available seat kilometer to 85-90 percent of 2019 levels this year.