Air France-KLM won against Lufthansa

Is Air France-KLM finally on its way to success in Italy? The Italian Ministry of Economy and Finance recently announced on August 31 the opening of exclusive negotiations with the consortium formed by Certares Management, Delta Air Lines and Air France-KLM for the acquisition of a share of the capital and acquisition of state airline ITA Airways, which took over from Alitalia a year ago.

The French group and its American allies are ahead of the German Lufthansa group which has joined the Italian-Swiss shipowner MSC, but long-term favourites. The Italian government judged that their offer “is more in line with the objectives set by the Prime Minister’s order”. Adopted in February, it formalized the privatization of ITA Airways whose capital is currently fully public.

In its communication, the Ministry of Economy and Finance warns everyone that at the end of exclusive negotiations, binding agreements will be signed only if their content is completely satisfactory for the public shareholder”. The duration of this period of negotiations or the proposed amount were not disclosed.

The Italian State remains in the capital

According to the daily Il Messaggero, as reported by AFP, the Certares fund, which specializes in tourism, proposes to acquire around 56% of ITA for around 600 million euros. The Italian State will thus retain a 44% share and will have two seats out of five that will be in the future board of directors of the company.

The distribution between the three partners is unknown at this time. The only certainty is that Air France-KLM’s room for maneuver is currently limited by the European Commission pending the payment of 75% of the state aid received during the crisis. The group is not far from this base since its recapitalization as well as the investment of 500 million brought by the Apollo Global Management fund in an Air France operating subsidiary. But in the meantime, he cannot own more than 10% of a company in the sector.

A solution discussed by a connoisseur of Air France-KLM could be an agreement with Certares and Delta Air Lines, which allows it to further push its participation in the second phase, once the European constraints have been removed.

Political uncertainty

Another uncertainty is that the Italian government may change its mind after the general election to be held on 25 September. In the main voting objectives at the moment, Giorgia Meloni, president of the far-right party Fratelli Italia, also called on the resigned Prime Minister Mario Draghi not to rush into a decision.

On the contrary, Carsten Spohr, CEO of Lufthansa sent a letter this summer to Mario Draghi asking him to go quickly and warning “that (his) patience is not infinite”. After making an offer at the end of January, the German group and its ally MSC did not succeed in obtaining a period of exclusive negotiations of 90 days from the Italian State, deciding first to play the competition.

Reuters then indicated that Lufthansa wanted to acquire 20% of the capital of the Italian public company, while its partner wanted 60%. AFP spoke for its part, in an offer worth about 1.4 billion euros in January, reduced by 850 million euros due to the deterioration of the air market expected after the summer.

Lufthansa and Air France-KLM have been fighting for victory in Italy for about fifteen years, after several battles during the Alitalia period. However, ITA Airways is only an ersatz of the emblematic Italian company. Despite the increase in announcements, its fleet is still limited to less than sixty aircraft, including eight long-haul A330s and A350s. The bulk of the effort is to reach 78 aircraft by the end of the year and 105 by the end of 2025. For this summer, its program includes 64 destinations, including 23 domestic, 34 regional and 7 intercontinentals. It is 20 more than a few months ago, but the company is still far from the leaders of the sector.

On the other hand, joining forces with ITA Airways is undoubtedly the best way to gain a strong foothold in the powerful Italian market. Before the crisis, it was the 5th European market with more than 150 million passengers, which still occupies the 4th place when counting only international traffic. The north of the country served by the airport of Milan, where ITA Airways was able to keep most of the time slots of Alitalia, a major group of business traffic, with a stable profit.

The network inherited from Alitalia offers important synergies with Lufthansa and Air France, with a strong presence in Milan and its important business traffic as well as in Rome and its great tourist potential. A formidable asset on paper, this dichotomy is nevertheless one of Alitalia’s main weaknesses.