Lufthansa takes over Austrian Airlines (Roundup)

Dec 5, 2008, 16:11 GMT

Vienna - Lufthansa AG on Friday signed a deal in Vienna to buy 41.65 per cent of Austrian Airlines from Austria's state holding OeIAG, creating Europe's biggest airline.

The debt-ridden flag carrier will be sold for the token price of 366,000 euros (465,000 dollars), OeIAG confirmed in a statement, while Austria will inject 500 million euros into the company.

The German carrier plans to take over 100 per cent of Austrian Airlines, first through the privatization, and then through buying free-floating shares.

The closing of the deal still depends on approval from the European Commission, which is expected for next spring.

To restructure Austrian Airlines, which carries 900,000 euros of debt and expects to end the year with a net loss of 415 million euros, quality and profitability would have to be raised, Lufthansa chief executive Wolfgang Mayrhuber said at a press conference in Vienna.

'This will not be easy, we know that,' said Mayrhuber, referring to the present global economic climate.

The Lufthansa chief said he hoped for a turnaround within around three years, and to create synergies worth 70 million euros. Under the deal, Lufthansa will pay an additional 162 million euros if Austrian Airline's performance improves.

The total price, including payments for the free-floating shares, is expected to amount to 377 million euros.

The Austrian flag carrier, which had come under pressure from high fuel prices and decreasing demand, will retain its brand, and Lufthansa agreed to expand Austrian Airline's business and keep its long-distance connections.

Through the takeover, Lufthansa will become Europe's biggest airline with around 74 million passengers annually, with Air France-KLM in second place with 74 million passengers, according to the Austrian Aviation Association.

The European Commission has yet to consider the deal's impact on competition, as well as the legality of a 500-million-euro cash injection.

OeIAG chief executive Peter Michaelis said he hoped get all necessary approvals by around May of next year.

Michaelis acknowledged that it had not been easy for Austrian politicians to agree to the sale of its flag carrier. 'It is a national symbol,' he said.

Lufthansa would try to keep as many Austrian Airlines employees and flight connections as possible, Mayrhuber indicated, while saying it depended on economic developments.

'Only profitable jobs are secure jobs,' he said. He refused to comment on the fate of current Austrian Airlines chief executive Alfred Oetsch.

Austrian Airline's revenue amounted to 2.5 billion euros in 2007, around 10 per cent of Lufthansa's sales.

With 100 aircraft and around 8,000 employees, Austrian Airlines has a strong focus on Eastern European and Middle Eastern destinations.

The airline was founded in 1957 as a state-owned company. Between 1988 and 2007, the state's share decreased to 42.75 per cent through a series of privatization steps.

French-Dutch carrier Air France-KLM and Russian domestic carrier S7 had also shown interest in Austrian Airlines, but neither of them submitted valid bids.