Crisis and Concentration

Crisis

The economic crisis has also hit the aeronautics industry. More than two dozen airlines companies have collapsed worldwide, since the beginning of the year. Also in Europe, there have never been so many airlines companies up for sale or searching for fusion partners. According to British experts, more than 50 European airline companies will not survive the coming winter. This is not only the case for the small cheap flights, but also traditional airlines corporations. Ripe for takeover are the Italian Alitalia, the Spanish Iberia, the Austrian Airlines (AUA), the Scandinavian SAS and the Serbian Jat. And the Czech CSA and the Polish LOT will soon be privatized. Olympic (Greece) and Malev (Hungary) are also threatening to go out of business. European air travel is being completely rearranged in the crisis.

Center of Crystallization

The German Lufthansa is one of the major beneficiaries, profiting from the collapse of the weaker airlines companies.[1] In the first semester of 2008, Lufthansa's business volume rose sharply - by 2 billion to reach a total of 12.1 billion Euros - and the operative results were up 219 million to reach 705 million Euros. Its main rival, Air France-KLM saw its quarterly profits fall to half of what it had been the previous year. Since numerous airlines companies are relatively inexpensive to acquire at the moment, Lufthansa is taking the offensive, simultaneously pursuing various buying options. The German airlines company, that is being accused of an "aggressive expansionist drive,"[2] seeks to bypass Air France-KLM to become the European airlines company with the largest trade volume.[3] The chairman of the board, Wolfgang Mayrhuber sees the Lufthansa as "the center of crystallization" [4] of air travel, that is now also heavily concentrated in Europe.

Toward Africa

Lufthansa is strengthening its position both domestically and abroad. On the German air travel market, it is seeking a new alliance that would apply strong pressure on the second in line on the home front, Air Berlin. It is negotiating the fusion of several vacation and low-budget airlines (Condor, Tuifly, Germanwings and Eurowings) to form a single enterprise, that Lufthansa would like to control one-third of its shares.[5] Abroad, Lufthansa, with the absorption of the Belgian airlines, Brussels Airlines, has just landed a first victory in the escalating concentration of the European flight sector. The German company bought 45% of the formerly state-owned airline for 65 million Euros, and has the option of a complete takeover in two years. Brussels Airlines flies to destinations in Europe, but more importantly, to resource rich regions of Africa.[6]

To the North

A possible next step is for Lufthansa to join the Scandinavian airlines SAS. SAS came under very strong pressure, because of the crash of an airliner belonging to its Spanish subsidiary, Spanair. The three states, Denmark, Sweden and Norway that together hold 50 percent of the SAS shares, had adamantly refused to sell to a private non-Scandinavian investor. Lufthansa is now engaged in exclusive merger negotiations, and according to reports, is encountering benevolence on the part of these majority shareholders. With this entry, through SAS shares in British Midland (BMI) and in Spanair, the German company would have obtained access also to the British and Spanish markets.[7] Lufthansa is already present in BMI, with 30 percent of its shares, and, according to Lufthansa, intends to obtain a majority by next year, at the latest.

To the South

Lufthansa has also shown interest in the Spanish Iberia Airlines. Iberia is seen as an attractive merger target, due to its links to South America - an economically highly lucrative development region. But Lufthansa's rival, British Airways (BA), the third largest airline company in Europe, after Air France-KLM and Lufthansa, has obtained priority and, together with American Airlines and Iberia, is in the process of creating a large-scale trans-Atlantic 3-way alliance.[8] On the other hand, Lufthansa is considered the leading candidate for a prompt takeover of the Italian Alitalia Airlines, that is on the verge of absolute bankruptcy. Just a few days ago, the leader of the largest Italian trade union federation, CGIL, called on the government to sell Alitalia to a foreign company and recommended negotiations with Lufthansa.[9] Prime Minister Silvio Berlusconi had already declared, that the badly ailing company should find an international partner - "and the best is Lufthansa."[10]

To the East

In Austria, Lufthansa is engaged in a bidding competition, whose outcome remains uncertain. The Austrian government is planning to sell the state controlled Austrian Airlines (AUA) preserving a mere 25 percent blocking minority plus one share. With revenues of over two billion Euros and 8,000 employees, AUA is one of the leading Austrian enterprises. With its numerous Eastern European flight destinations AUA is considered to be an attractive merger candidate. Lufthansa is one of the three remaining bidders - alongside its main European rival, Air France-KLM and the Moscow based S7 Airlines, the leading flight company for destinations inside Russia. Even though the German Lufthansa is the preferred partner of the AUA management and its board of directors, the Russian S7 is said to have made the best offer.[11]

Insider Relationships

The three remaining contenders, who have to submit a firm offer to the Austrian industry-holding stock corporation (ÖIAG), by October 21, are counting on diverse insider relationships. Lufthansa can benefit from the fact that former managers of German enterprises are holding numerous positions in the network of Austrian firms and administrations, in charge of choosing AUA's buyer and other privatization measures. (german-foreign-policy.com reported).[12] But the competitors are not inactive. It is being reported that the sympathies of Chancellor Alfred Gusenbauer (SPÖ - Social Democratic Party of Austria) and Vice-Chancellor Wilhelm Molterer (ÖVP - Austrian People's Party) as well as those of Alfred Ötsch, the AUA's chairman of the board, lie more with Air France-KLM. But it is not clear, if these sympathies can be influential on the decision or if they are just intended to jack up the price. Ötsch, a former Siemens manager has excellent relations to Germany. Judicial investigations have been initiated against him in Nuremberg in connection with a Siemens bribery scandal.[13]

Pulling Strings

The lobbyists for the Russian S7 are particularly active at this moment. S7 is said to be financed by the Gazprombank and Sberbank with the Kremlin in the shadows. Siegfried Wolf, chairman of ÖIAG's privatization committee, formally charged with of the sale of AUA, is the top S7 supporter. Wolf is chairman of the board of the Austrian Magna Company, where the Russian billionaire, Oleg Deripaska, has had a stake since 2007. S7 is also backed by two political heavy weights, Michael Häupl (SPÖ) and Erwin Pröll (ÖVP). They are governors in the states of Vienna and Lower Austria, respectively, which have a 20 percent share in the Vienna Airport and are therefore very interested in preventing AUA from going to Lufthansa. They fear the Vienna Airport's losing its importance, because of the close coincidence of the German and Austrian company's air routes. They also see the danger of flights being outsourced from Vienna to the nearby Lufthansa hub at the Munich Airport. But the main person pulling the strings for the Russian airline company is former German chancellor Gerhard Schröder (SPD). He is said to have mobilized a whole squad of Austrian social democrats, including former interior minister Franz Löschnak in favor of S7.[14]

Through the Back Door

In the bidding for the takeover, Lufthansa is using serious threats: Lufthansa is considering halting air traffic cooperation between Austria and Germany, declared one of its representatives. Lufthansa and AUA are cooperating in the coordination and marketing of air traffic between the two countries. This is a lucrative business, with annual revenues of up to 500 million Euros.[15] The threat is mainly aimed at AUA's possible takeover by Air France-KLM. But one hears that AUA's takeover by the Russian S7 is quite acceptable. S7 would be expected to carry out the projected unpopular cuts and the German company could indirectly benefit. Lufthansa has been searching for a partner in Russia - and could soon find one, S7, as is assumed by insiders.[16] This has been made possible through exclusive contacts stabilized through Berlin's East/West see-saw policy: the German special relations with Moscow.

[1] Warum der ruinöse Wettbewerb der Airlines Lufthansa nützt; Financial Times Deutschland 05.08.2008. Die Lufthansa ist der große Gewinner der Krise; Welt online 30.08.2008: See also Übernahmephantasien and Durch die Krise gestärkt
[2] Vorstoß Richtung Norden: Lufthansa geht auf Expansionskurs; Financial Times Deutschland 15.09.2008
[3] Lufthansa will Europas Nummer eins werden; Welt online 26.08.2008
[4] Lufthansa will Europa-Flugverbund bauen; www.nachrichten.at 11.09.2008
[5] Ebenfalls je ein Drittel sollen die Reisekonzerne Arcandor/Thomas Cook und TUI erhalten. Lufthansa schmiedet Airline-Bündnis; Berliner Zeitung 25.08.2008. Pläne für deutsche Allianz am Himmel; Frankfurter Allgemeine Zeitung 29.08.2008
[6] Lufthansa steigt bei Brussels Airlines ein; dpa 15.09.2008. Lufthansa eröffnet Fusionswelle; Süddeutsche Zeitung 16.09.2008
[7] SAS: Lufthansa denkt an nächste Übernahme; Focus online 12.09.2008. Vorstoß Richtung Norden: Lufthansa geht auf Expansionskurs; Financial Times Deutschland 15.09.2008
[8] British Airways und Iberia stehen vor der Fusion; Frankfurter Allgemeine Zeitung 30.07.2008. Iberia ohne Lufthansa; Frankfurter Allgemeine Zeitung 30.07.2008
[9] Gewerkschaften: Berlusconi soll Alitalia an Ausländer verkaufen; www.dolomiten.it 20.09.2008
[10] Lufthansa ist Berlusconis Wunschpartner für Alitalia; Handelsblatt 16.09.2008
[11] Privatisierungspläne: Austrian Airlines will Lufthansa zum Partner; Financial Times Deutschland 29.07.2008. Lufthansa ist Favorit für die AUA; Frankfurter Allgemeine Zeitung 30.07.2008. Russische S7 Airlines macht attraktivstes AUA-Angebot; Dow Jones Newswires 18.09.2008
[12] see also Unheimlicher Anschluss (II)
[13] Siemens-Skandal: Ermittlungen gegen AUA-Chef; Handelsblatt 09.09.2008
[14] AUA-Bieterkampf: Die Seilschaften hinter dem Deal; Die Presse 20.09.2008. Austrian Airlines: Ist Ex-Bundeskanzler Schröder der S7-Strippenzieher?; www.airline-bewertungen.eu 21.09.2008
[15] AUA-Verkauf: Lufthansa packt die Peitsche aus; Wirtschaftsblatt 24.08.2008
[16] Russische S7 Airlines macht attraktivstes AUA-Angebot; Dow Jones Newswires 18.09.2008. See also Wichtiges Ziel