FRANKFURT—The Italian government has agreed to extend the deadline for exclusive talks over the sale of ITA Airways to Lufthansa Group by three weeks, pending the resolution of several outstanding issues.
The two sides had planned to come to a final agreement by April 24. The outline of a deal was to see Lufthansa take an initial 40% stake in the new Italian airline with the option for a full acquisition at a later date. Lufthansa Group was prepared to invest around €200 million ($220 million) for the initial stake, valuing ITA at just €500 million.
But pricing is now turning out to be a sticking point. Both sides believed initially that the takeover would be waived through in a relatively short “phase 1” review by the European Commission (EC). However, now the airlines are getting indications from Brussels that a deeper “phase 2” investigation is much more likely. With ITA continuing to make losses as a standalone airline, Lufthansa argues the acquisition price should be lower if the regulatory process is to take longer.
A phase 1 review is a relatively straightforward process. The EC has 25 working days to look at the case. It can be extended by 10 days to examine any concessions put forward by the parties. If the antitrust authority is not convinced that the impact on competition is acceptable, a phase 2 investigation is opened. That process takes at least 90 days and is often extended further.
Lufthansa would have to notify the EC upon signing of the deal. Assuming a phase 2 review is opened, October would be the earliest possible target for closing the transaction.
Industry sources say both sides remain keen to reach an agreement. ITA is under enormous pressure to find a private strategic investor. Restarting the process to look for another buy would mean further delays and could leave ITA without a partner for the upcoming winter season. Other industry players interested in ITA would likely face similar competition concerns, which are typically focused on market-share effects on routes between the two countries affected.
Meanwhile, Air France-KLM has not shown interest in acquiring the airline and is instead focused on the opportunity of investing in TAP Air Portugal, the privatization process of which is supposed to be launched soon. International Airlines Group (IAG) CEO Luis Gallego has also said that his company would take a look at TAP, as has Lufthansa, its partner in the Star Alliance.
By investing in ITA, Lufthansa plans to build Rome-Fiumicino into the southernmost hub of its European network, offering connections to North Africa and potentially Latin America. However, Lisbon is in a better geographic location for Latin American connections as Rome is further east, leading to longer flight times for many markets. TAP also has a relatively dense network into West Africa.
