European Union investigates Lufthansa’s plan to take over Brussels Airlines

Tuesday, January 27, 2009, 18:32 by Aviation Correspondent

The European Union (EU) is investigating whether the proposed takeover of Brussels Airlines, the largest airline in Belgium, by Lufthansa AG, the flag-carrier airline of Germany, violates “fair and open competition” in the airline sector leading to a monopoly on some routes.

Lufthansa plans to take over Brussels Airlines, which flies to destinations in Europe and Africa, by buying a 45% stake in the holding company that owns the Belgian carrier for 65 million euros ($85 million).

The deal also gives Lufthansa the option to take over the whole of Brussels Airlines in 2011 for a price not exceeding 250 million euros ($325 million).
In a statement, Neelie Kroes, European Union’s Competition Commissioner, said that she must make sure that “consumers will continue to have a competitive choice of airline services both as regards fares and routes.”

The European Union’s Competition Commission has set a new deadline of June 10, 2009, to rule on the Lufthansa-Brussels Airlines deal.

According to aviation analysts, though the European Union rarely obstructs takeovers, it can demand that companies sell off units or change the way they do business to get rid of issues over antitrust. (The European Union had, in 2008, blocked a bid by Ryanair for Aer Lingus – both based in Ireland – because Ryanair would control most flights out of Dublin.)
According to the EU Competition Commission, its initial review of the Lufthansa-Brussels Airlines deal revealed that the new company would become the only airline serving routes from Brussels in Belgium to the German cities of Frankfurt, Hamburg and Munich.

The deal would also lessen competition on the Brussels to Berlin route, the statement from the Competition Commission said, adding that it also found that there would be problems with routes from Brussels to Zurich and Geneva in Switzerland.
The EU Competition Commission said that though Lufthansa had offered to make changes to the deal, the German flag carrier “did not go far enough to remove the serious doubts identified.”

Lufthansa said in a statement that it would analyse the EU Competition Commission’s decision to investigate its deal with Brussels Airlines and that it expected the Commission’s to approve the takeover.

On its part, Brussels Airlines said in a press release that, in view of the current economic situation and the consolidation process ongoing in the airline sector, Brussels Airlines “is convinced that this agreement with Lufthansa is the best guarantee of a healthy future.”

Meanwhile, Lufthansa is also planning to buy the Austrian government’s 41.56% stake in the ailing Austrian Airlines, the flag-carrier airline of Austria.

Lufthansa had, in 2008, bought 80% control of BMI British Midland, an airline based in the United Kingdom, thereby giving the German carrier a larger presence at London’s Heathrow Airport.

Media reports had said that Lufthansa was interested in buying the Scandinavian Airline System (SAS), based in Stockholm, Sweden, as well as Alitalia, the bankrupt Italian airline.