Privatization of Austrian Airlines process begins

The process of bidding for the full privatisation of Austrian Airlines AG, the flag carrier of Austria, has been set in motion with the government of Austria offering its 42.75% stake in the airline. The privatisation has been planned to be finalised by the end of 2008.

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

Austrian Airlines AG said that it is seeking an international partner for the flag carrier which is in financial trouble, but has reserved a controlling minority stake for Austrian investors.

Austrian Airlines lost a net 48.7 million euros ($76.5 million) in the first half of 2008, mainly on account of record-high fuel costs and a slower global economy.

Prospective investors can submit their letters of interest to the investment bank Merrill Lynch till August 24, 2008, the Austrian government-controlled OeIAG holding, which currently owns the shares, said in a statement.

An advertisement in Austria’s Wiener Zeitung newspaper on August 13, 2008, said that the state holding company OeIAG was inviting potential bidders for Austrian Airlines to notify their interest by August 24.

OeIAG is offering its entire 43% stake in Austrian Airlines, which is worth about 157 million euros ($234 million), but the size of the stake sold would depend on preserving an Austrian group of core shareholders owning 25% between them. ‘

The major airlines which have indicated interest in Austrian Airlines include  Deutsche Lufthansa AG, the flag carrier of Germany and the largest airline in Europe in terms of overall passengers carried; and Turkish Airlines, the national airline of Turkey based in Istanbul.

Deutsche Lufthansa has indicated an interest in the airline, even if a controlling stake stays in Austrian hands.

Turkish Airlines operates services to domestic destinations and international destinations in Europe, Asia, Africa, and the United States. The airline, which is a member of the Star Alliance, has its main base at Atatürk International Airport in Istanbul.

Turkish Airlines, one of the fastest growing airlines in Europe, had said two weeks ago that it had not received a strategic partnership proposal from the Austrian government but that it would consider such a proposal if it received one. The airline has said that it aims to boost passenger traffic to 23.5 million in 2008, from 19.6 million passengers it carried in 2007.

Turkish Airlines is also interested in bidding for a 49% stake in the Bosnian carrier BH Airlines.

According to Austrian media reports, a number of potential Austrian investors have  announced that they are not interested in buying shares of Austrian Airlines.

If local investors are unable to form a consortium holding 25% plus one share, the Austrian government has announced it will keep some shares to guarantee a controlling minority stake, the reports added.

Apart from Deutsche Lufthansa and Turkish Airlines, other potential partners for Austrian Airlines being mentioned in the Austrian media include Air China, Aeroflot, Singapore Airlines, Emirates Airline, and Air France-KLM.