European Commission investigates planned sale of Austrian Airlines to Lufthansa

The European Commission has initiated an investigation into allegations that Deutsche Lufthansa, the flag-carier airline of Germany, may not have paid enough to buy Austrian Airlines, the flag carrier of Austria.

In December 2008, Lufthansa had signed a deal to buy a 41.6% stake in Austrian Airlines from the Austrian state holding company OeIAG for a symbolic sum of 1 euro cent per share, or only over a total of 366,000 euros. According to the agreement, that amount could eventually go up to 162 million euros, depending upon the performance of Austrian Airlines in future and also the price of Lufthansa’s shares over the next three years.

Another condition of the Lufthansa-Austrian Airlines pact was that the government of Austria should absorb 500 million euros of Austrian Airlines’ debts – which would come to over one-third of the total debt of 1.4 billion euros.

If and when Lufthansa’s plan to take over Austrian Airlines materialises, it will lead to the creation of Europe’s biggest airline.

The European Commission, the executive arm of the European Union (EU), said in a press release that it suspected whether the price paid by Lufthansa “reflects the market price for what is being sold.”

The Commission also said it doubted that the deal could violate European Union’s rules on subsidy that curb government handouts for businesses that are at risk of folding up as also rules that require governments to act like normal market investors.

The European Commission release criticised Austrian government for “possibly paying too much” to the Austrian Airlines and also for the way the government planned to restructure the business. It also found fault with the way Austrian Airlines was sold, elaborating that the sale “may not have been truly open, transparent and unconditional.”

The current investigation by the European Commission, the press release said, was “separate” from the approval that the European Union had given in January 2009 to Austria’s €200-million guarantee by way of a short-term rescue loan for Austrian Airlines.

Aviation experts are of the opinion that the present investigation by the European Commission is the second barrier to Lufthansa’s efforts to buy airlines. The European Commission is already examining Lufthansa’s bid for Brussels Airlines regarding fears that that the takeover could create a monopoly on some routes.

Lufthansa had, in 2008, bought 80% control of BMI British Midland, an airline based in the United Kingdom.
Media reports had said that Lufthansa was also interested in buying Scandinavian Airline System (SAS), based in Stockholm, Sweden, and also the bankrupt Italian airline Alitalia.