Acquisition of ITA Airways (formerly Alitalia): Air France-KLM beats Lufthansa

Air France-KLM, aux côtés de Certares et Delta Air Lines, est désormais en pôle pour la prise de contrôle d

Is Air France-KLM finally on the road to success in Italy? The Italian Ministry of Economy and Finance has just 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 part of the capital and the takeover of the state-owned airline ITA Airways, which replaced Alitalia a year ago.

The French group and its American allies thus have priority over the German group Lufthansa associated with the Italo-Swiss shipowner MSC, albeit long-time favourites. The Italian government judged that its offer was “more in line with the objectives set by the Prime Minister’s decree”. Adopted in February, it formalized the privatization of ITA Airways whose capital is currently entirely public.

In its communication, the Ministry of Economy and Finance also warns that “at the end of the exclusive negotiations, binding agreements will only be signed if their content is fully satisfactory to the public shareholder”. The length of this trading period or the amounts proposed have not been disclosed.

The Italian State remains in the capital

According to the newspaper Il Messaggero, as reported by AFP, the Certares fund, specialized in tourism, has proposed the acquisition of almost 56% of ITA for around 600 million euros. The Italian State would thus maintain a 44% stake and would have two positions out of the five that will be in the company’s future board of directors.

The distribution between the three partners is not known at the moment. The only thing certain is that Air France-KLM’s room for maneuver is currently limited by the European Commission pending reimbursement of 75% of the state aid received during the crisis. The group is not far from this threshold since its recapitalization as well as the investment of 500 million contributed by the Apollo Global Management fund in an operating subsidiary of Air France. But in the meantime, you cannot acquire more than 10% in a company in the sector.

One solution mentioned by an Air France-KLM insider could be a pact with Certares and Delta Air Lines, allowing it to further boost its participation in a second phase, once European restrictions have been lifted.

political uncertainty

Another uncertainty is that the Italian government could change its mind after the general elections to be held on September 25. At the head of the voting intentions for the moment, Giorgia Meloni, president of the far-right Fratelli Italia party, had also called on the resigning Prime Minister Mario Draghi not to rush a decision.

On the contrary, Carsten Spohr, CEO of Lufthansa, had sent a letter to Mario Draghi this summer asking him to be quick and warning him “that (his) patience is not unlimited”. Having made an offer at the end of January, the German group and its ally MSC having failed to obtain an exclusive 90-day negotiation period from the Italian state, they decided first to let the competition play.

Reuters indicated then that Lufthansa wanted to acquire 20% of the capital of the Italian public company, while its partner aimed at 60%. AFP speaks, for its part, of an offer valued at about 1,400 million euros in January, reduced to 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 many skirmishes during the Alitalia era. However, ITA Airways remains just a surrogate for the iconic Italian carrier. Despite the proliferation of advertisements, its fleet is still limited to less than sixty aircraft, including eight long-haul A330s and A350s. The bulk of the effort is yet to come 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 intercontinental. They are 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 foothold in the powerful Italian market. Before the crisis, it was the 5th largest European market with more than 150 million passengers, which even ranked 4th if only counting international traffic. The north of the country, served by the Milan airport, where ITA Airways has managed to retain most of Alitalia’s schedules, is an important group of commercial traffic, with strong profitability.

Alitalia’s legacy network offers significant synergies with that of Lufthansa and Air France, with a strong presence in Milan and its significant business traffic, as well as in Rome and its enormous tourism potential. This dichotomy, a formidable asset on paper, has, however, been one of Alitalia’s main weaknesses.