Lufthansa confirms its interest in bidding for stake in Austrian Airlines

Deutsche Lufthansa AG, the flag carrier of Germany, has confirmed that it has formally expressed an interest in buying the Austrian government’s stake in Austrian Airlines, the flag-carrier airline of Austria. Lufthansa, according to press reports, also is looking at a partnership deal with Alitalia, the flag-carrier airline of Italy. The German carrier is reportedly holding talks with Alitalia over a partnership deal aimed at saving the cash-strapped Alitalia from bankruptcy.

Austrian Airlines AG, headquartered in Vienna, Austria, together with regional subsidiary Tyrolean Airways (Austrian Arrows) and charter arm Lauda Air, operates scheduled services to over 130 destinations. Austrian Airlines, with its  main base at Vienna International Airport and another hub at Innsbruck Airport, is a member of the Star Alliance and the Austrian Airlines Group.

According to aviation analysts, the move by Lufthansa, the largest airline in Europe in terms of overall passengers carried after Air France-KLM, could strengthen the German flag carrier’s role in Europe’s air travel market.

Austrian Airlines is run by the state-owned holding company Österreichische Industrieholding AG  (OIAG,).

Lufthansa’s confirmation of interest in buying the debt-ridden Austrian Airlines came just after the deadline for expressions of interest in buying 43% stake in Austrian Airlines expired.

Bidders for Austrian Airlines have about a fortnight’s time to submit broad plans for the carrier, including provisions to maintain routes, the carrier’s identity, and, if possible, jobs as well as commitment to maintain Vienna as a regional hub, a statement from the airline said.

Negotiations on price will only begin after the initial rounds of talks. The conditions include a commitment that Austrian investors should retain a blocking 25.01% minority, the statement added.

Austrian press reports had said that 6 airlines expressed an interest to Merrill Lynch, the investment bank handling the deal, in buying a stake in Austrian Airlines. The bidders named included Air France-KLM, Turkish Airlines, and S7, the new brand name for Russia’s Sibir Airlines.

Austrian Airlines is one of many small and medium-sized carriers in Europe weighed down by high fuel costs and stiff competition from low-cost airlines.

The company, which has net debts of nearly €900 million ($1.33 billion), lost €48.7 million in the first half of 2008 and has warned that it may lose €70 million-€90 million in the full year.

Despite its high costs and an unusually diverse fleet, analysts say that Austrian Airlines has its attractions – like, the group has set up a big network in fast-growing central and eastern Europe and the Middle East, with services to many smaller cities.