The latest: Plans for Alitalia revival - The Lufthansa Group has announced to take a stake in ITA Airways

Real World Aviation
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update to the situation as a reply in the thread

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Lufthansa finally set to buy a stake in ITA in this week


After a long time of negotiations following the Italian government’s decision to sell ITA Airways, the successor of Alitalia, Lufthansa has emerged as the buyer for Italy’s flag carrier.

This follows months of bidding and negotiations. Earlier this year, initially Indigo Partners (Wizzair, Volaris, Frontier), Cetares in combination with Delta and AFKLM as well as Lufthansa with MSC entered bids for ITA.

The large interest may have come to the surprise of many, especially since loss-making ITA and also previously Alitalia have been historically struggling with strong low-cost competition by Wizzair and Ryanair in Italy.

After Lufthansa and MSC submitted the highest bid for ITA, Cetares with Delta and AFKLM emerged as victorious at first, offering the new nationalist government more state control compared to Lufthansa and MSC who saw the only way out for ITA in a complete privatization.
After months of negotiating, AFKLM and Delta effectively pulled out of the deal which left the government with cash bleeding ITA and no buyer.
Luckily for the government, Lufthansa was still very much interested in the Italian market - the second most important for the Lufthansa Group after the US - however, this time Lufthansa was forced to bid without MSC who had pulled out in the meanwhile, establishing their own cargo airline instead of using ITA’s cargo capacities. Now, it seems like that Lufthansa and the Italian government have come to an agreement that will see Lufthansa initially take 49% of the company for around 200-400 million USD, which is way lower compared to what the company was valued at in the summer.

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Lufthansa is aiming to incorporate ITA into its network of central European hubs like Frankfurt, Munich, Zurich, and Vienna and will first try to turn ITA around using synergies with the remainder of the group such as allowing passengers to book ITA trips via another Group airlines’ website. ITA will also join the Star Alliance to increase synergies further and will be orientated to be the Lufthansa Group hub with a focus on the Mediterranean, North Africa, and South America.
In the future, Lufthansa will probably go ahead with the ITA takeover as it did with Brussels Airlines in the past: increase its stake step by step to emerge from being a strategic partner to being the full owner of the airline. This option is likely to be set in stone within the contract of the purchasing agreement for the initial stake.

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The fleet of ITA fits right into the fleet strategy of the Lufthansa Group, with only the A330-900neo being new to the Group’s operation. If it proves successful in operation, it might also be ordered in the future, as it would be an ideal replacement for Swiss and Brussels Airlines A330s. The A350, A320neo, A321neo and A220 are all already operated within the group, so additional synergies can be profited of.

One question that remains unclear, is how Air Dolomiti and ITA will be aligned. Air Dolomiti, the Lufthansa Group’s Italian airline which currently mainly operates feeder operations from Italy to Munich and Frankfurt, might become redundant with the purchase of ITA. However, it remains unclear what the faith of Air Dolomiti will be.

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This is pretty cool

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I think this is one of the more significant developments out of this story. Thanks for sharing, @MxP!

I wonder if they won’t just merge the two? Can they do that?

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Yes! I mean I am pretty biased when it comes to Lufthansa, but I am so happy they get to grow again after the pandemic!

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I personally don‘t think that this is a real possibility, mostly because of the fleet composition. With the transition of Alitalia to ITA all EJets in the ITA fleet were phased out and the airline is now only based around Airbus aircraft, with the A220-300 and -100 (in the future) taking over the more regional connections.
The complete opposite is happening at Air Dolomiti. They are an Ejet-only operator and only operate the Embraer 195 (and E190 in the future, since Lufthansa CityLine will transfer the E190s to Air Dolomiti). Thus, merging them would probably create quite some extra costs.
I thus think they won‘t be merged and will continue to operate parallel to each other. I could also imagine that Air Dolomiti will keep operating the majority of routes as it does already that aren‘t also served by ITA. So maybe ITA will take over all FCO and LIN routes but Air Dolomiti will continue to operate feeder services to MUC and FRA from the secondary Italian airports. Maybe it will even act as a feeder for ITA as well! I could also imagine that Air Dolomiti will increasingly fly from MUC and FRA to non-Italian destinations partially replacing Lufthansa CityLine on some routes as it already does and also fill in on Lufthansa flights when demand is low.

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That’s true, even though I think Star Alliance will also lose one member in the form of TAP, since they are also up to sale soon and AFKLM will probably snatch them even if Lufthansa will try to purchase them as well.Similar story with SAS I believe, which would be particularly sad considering they were one of the founding members of Star Alliance as the first airline alliance.

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Sounds great news since i read some article about Lufthansa is ready to sell ITA flights. But the question is was it accidentally or not? Let’s see in upcoming few months.

Source:

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While it might officially be a partial mistake since they haven‘t officially announced it yet, I believe that they have simply begun with the integration of ITA into the Group since the contract has probably been already signed, just the announcement hasn‘t been done yet. Thus, I am pretty sure we can expect good news tomorrow already.

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I LOVE MONOPOLIES I LOVE MONOPOLIES I LOVE MONOPOLIES

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So, I am not sure where Lufthansa will have a monopoly. In Italy, ITA has a 9% market share while airlines like Ryanair have 40%. Even combined with the whole Lufthansa Group this still doesn‘t even remotely reach the market share of the LCCs. If we talk about long-haul options from Italy, sure the Lufthansa Group will have the leading market share, especially if you take the one-stop options via the Group‘s hubs into consideration, but that‘s natural considering that ITA is Italy‘s flag carrier.
The truth is, that market consolidation is taking place in Europe all across the board. It‘s true that the removal of one „independent“ (if you can call ITA that considering its alliance membership) competitor in the European market impacts competition, but ITA‘s acquisition alone doesn‘t really change too much in the aviation landscape. Similar to TAPs and especially SAS‘s future, the only alternative would have probably been a slow but steady decline into bankruptcy. The integration into AFKLM also would have led to a similar consolidation, so that alternative also wouldn‘t have been much better.

If I am wrong about anything feel free to tell me, since I am also very interested in this and would like to learn something in case I am misunderstanding a concept here.

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Update #1:

Italy has now opened up the way for the privatization of ITA Airways. A decree published in the journal of the Italian state has now opened up the possibility for a foreign airline to take over ITA in multiple steps (so step-by-step increases of shares) similar to what Lufthansa did with Brussels Airlines.
According to the Italian newspaper Corriere della Serra Lufthansa is aiming at taking over 40% of ITA Airways for $180-200 million at first. In the long-run the airline will however be able to completely privatize ITA Airways.

Source:

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Ill throw in my two cents on the matter as ive been following this closely ;)

  1. LH stated that them selling ITA tickets happened due to them having some sort of interline agreement. Is that true or not, no one knows but them, we will see soon i guess

  2. Air Dolomiti is very important IMO, it (shoud) be right at the top of the list of priorities for ITA, along with LH handing them a bit of their Italian market share, and general business plan by LH. If i were ITA, i wouldnt even consider LH offers unless they included a clause that turned Dolomiti basically into AZ Cityliner 2.0. The issue is, as you mentioned, ITA didnt inherit nor the planes (E-Jets), nor their staff, nor the maintenance capability for those planes. Secondly, Dolomiti would need to be “reoriented” from MUC and FRA to fly transfers towards FCO, LIN, maybe even MXP, VCE, or NAP as future ITA focus cities. ITA could really use an E90 sized plane, since even the A221 is slightly bigger than it, and the E90 could help them open new routes to future and former transfer markets (Balkans for example).

  3. On the other hand, Dolomiti as well isnt in an admirable position as IMO LH is once again “shoveling around” its “black sheep” airlines from the group (Dolomiti, EW, EWD, LH Cityline), not knowing what to do with all of them, Dolomiti flies for LH on some routes, then gets swapped for LHC, then LHC is set to give all its Embraers to Dolomiti etc… who gets what, who is what type of airline, what is everyones purpouse, who is merging…only Spohr knows!

A few ending, but very intresting notes:
-ITA is losing money, but in a pre-planned way, it was all expected costs for starting up an airline. They even said they were outperforming expectations financially!
-They are gaining domestic market share, they reported an i think 5-7% swing in their favour, on FR’s back. IMO this is hugely important as domestic transfers will make or break their longhaul profitability in these early years
-ATM, ITA is still a “paper” airline. Mosty costs, and some assets. Once they start getting some of their bought planes, namely A33Ns, A221s, they should start gaining some actual value as a business, which could increase their purchase price. Is the government stalling on purpouse, for this exact reason? Intresting thought!

-Not ITA related, but regarding above comments on alliances - the only remaining legacy airline in Europe, of a significant size, that is fully independant from any alliances or groups could be one called Air Serbia (ASL) actually (correct me if im missing someone)! It is developing at a rapid pace the last 2-3 years, is due to open 20ish new routes this year, operates with a fleet of 20 planes, likely growing to 26ish during this summer, and is becoming a serious player, with even a growing long haul network. It has codeshares with AFKLM, formerly Aeroflot, works very closely with TK, reportedly working on a JV with them, and possibly even joining their FF program, and has just today announced an upcoming, wideranging codeshare with Qatar, and is due to announce a codeshare with most likely AA!

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That is in fact true and turned out to be a research error of the sources I based my information on. However, the decree is in fact real and most likely represents the government moving to enable LH to purchase ITA.

I honestly don’t think Air Dolomit should focus on ITA. Only partially maybe, but keep its (partial) focus on feeding MUC (and FRA) since they (especially MUC) would lose important Italian connectivity otherwise and FCO/LIN aren’t planned to be orientated the same way MUC and FRA are. I can see them helping out ITA though, especially since they are now growing their fleet to include the E190s from Lufthansa CityLine.

This isn’t true in my opinion. Every of those airlines serves its own unique purpose. Lufthansa CityLine flies with A319s, E190s and CRJ900s from and to Munich to feed to the hubs. They operate on regular routes and are occasionally swapped in for mainline flights whenever their smaller capacity aircraft are required since they handle all of the regional aircraft by LH. Eurowings is completely detached from the mainline carriers, operating without many ties to the remainder of the LH Group serving European hubs as well as secondary German airports as a low-cost carrier and Eurowings Discover is again totally an independent airline. Its focus is also clear: take over all Eurowings long-haul flights, since operating a mixed fleet of long- and short- to medium-haul aircraft just wasn’t efficient enough for Eurowings, and also take over most of LH’s traffic to leisure destinations, basically becoming the German Edelweiss. Air Dolomiti is mostly concentrated on flying feeders to and from MUC and FRA with a few extra routes operated by them. This is simply due to the fact, that they’re planned to grow to move the Embraer’s to one airline, which means that they have to partially take over what LH CityLine would normally fly.
Other than that, all of the aforementioned airlines also fly for Lufthansa. This is the case due to a number of reasons. Firstly, sometimes Lufthansa needs to swap in lower capacity aircraft on some routes or requires additional capacity that EW and EW Discover can currently offer, simply because their business is heavily seasonal and additional capacities of LCCs and leisure carriers are abundantly available during the winter season, while network carriers might sometimes require additional capacity since they mostly serve less seasonal destinations. For example, EW Discover currently flies some A330s for Lufthansa because Lufthansa is desperate for long-haul capacity, which is also the reason why they are bringing back the A340-600 and A380.

So every carrier serves its own distinct purpose with only a bit of shuffling happening here and there, but for good reason and mostly also only temporarily.

I am not sure whether or not this is accurate. Yes, they were expected to lose money in the beginning, but their Cost per available seat kilometer is still 1.3+ above their revenue per available seat kilometer. During the weaker winter season, they are also expected to lose even more money soon requiring another equity injection by the government. To prevent this, the government is trying to complete the sale as soon as possible.

I am also not sure whether or not your source is simply sugarcoating the fact that they have increased their fleet size and employed more aircraft which means they are automatically also increasing their market share. The question is whether or not the capacity increase was similar to the passenger growth or whether the load factors have dropped subsequently.
No matter how successful ITA does domestically, it is certain that Lufthansa’s partnership would bring many advantages to the profitability of their long-haul (and short-haul operations). Not only can Air Dolomit potentially help ITA as a feeder, but LH Group passengers that get rerouted to FCO when ITA will focus on a certain long-haul destination region would further increase load factors basically making ITA less reliant on the domestic market where it has the strongest competition.

I am not sure about that honestly. As far as I know, ITA wants to lease the majority of their aircraft, and leased aircraft aren’t an asset to the airline, but rather are the lease installments a liability. Thus, I am not too sure if the debt-to-equity ratio will increase with the induction of new-generation aircraft. I am also pretty certain that the Italian government isn’t stalling the negotiations. The published decree allows for a step-by-step takeover exactly like the one Lufthansa performed with Brussels Airlines so it would seem pretty coincidental if they would publish such a document stating that the buyer, which was specified to be required to be one of the bidders that have previously the race for ITA (and only LH is left) and a European airline as the frontrunner (AFKLM can’t take over since they can’t perform a capital increase due to CoVid19 loan conditions), so Lufthansa basically remains the only airline that this decree seems to be tailored for. Pretty sure this deal is gonna go through this month, this was also said by a Corriere della Sera informant.

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Yes of course, thats logical, i agree with that! I was just making those remakrs since i think LH has one “surplus” airline, that likely being LH CityLine - it makes sense to move all EJs to one airline (Dolomiti), but i dont see much use in LHC being an A319 only operator - would it maybe be better to just fully integrate them into LH? And leave Dolomiti as LH’s version of the airlines operating for USB3, i.e. DL Connect, UA Connect, AMEX -i.e. Mesa, PSA, Skywest, etc…, All my opinions should obviously be taken with a grain of salt as most of these desitions likely depend on finances of each of the airlines, something we can only speculate on.

Well neither am i, we only have theirs, and govrenment reports to quote, but thats what those are saying, - performance above expectations. As for the injection, as far as i know its the next “tranche” due - they didnt get all of the 3 billion immediatelly, and most of that money is conditional on good results.

It would appear that it was, new domestic frequency increases were recently announced for SS23, and the adition of A223s instead of A319s is also destined to increase load factor ina sustainable way.
AS for what you said later, yes of course the reach of the LH network would be a godsend for them, i was just talking about their own routes for starters, since thats what their success in the near future is based on!

Yes of course they are, and will be, thats why i specifically said that aircraft bought from Airbus could help them, as those become assets in their possetion, thus no lease payments. Those should be some A220s, majority of A339s, and A320neos whenever those arrive. They will of course represent only around 25% of the fleet, but its still something

I also expect the deal to close soon, but im more excited to see what LH does with it eventually, since they will finally get their years long wish of getting a firm foothold in the italian market.
Lets hope for some news soon!

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LHC is no surplus airline, even if it might seem like that. LHC is the pendant of DL Connect and UA Express, meaning that they only fly small gauge aircraft and the pilots have worse contracts making these short-haul operations cheaper for Lufthansa.
Air Dolomiti was an originally Italian carrier and the headquarters are still there. The aircraft and crews are also mostly Italian meaning that Air Dolomiti couldn‘t really takeover in Germany.

Agreed! Let‘s see and hope!

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Major Development

Lufthansa has now formally announced its bit to acquire a stake in ITA Airways and submitted its bit to the Ministry of Economy and Finance. Lufthansa is the last remaining bidder for ITA Airways.

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The Italian government has now signed a letter of intent (LOI) to pursue the deal proposed by Lufthansa with exclusive discussions commencing now.

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Another greatly interesting batch of news emerged from the first talks between Lufthansa and the Italian government. According to two government sources, Lufthansa has brought up reviving the Alitalia brand alongside of purchasing ITA. The idea would be to split the traffic between intercontinental traffic, which would be serviced by the revived Alitalia, and domestic/continental traffic which would be provided by ITA. This possibly aims at the idea of Lufthansa positioning ITA as more of a budget carrier to better compete with the likes of Ryanair & co. All of this is possible due to ITA purchasing the Alitalia brand when it was established.
However, this would only be implemented once ITA is profitable according to the sources.

German Source:

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I predict that Air Dolomiti will wither be incorporated within ITA, or act as a subsidiary of ITA and take over the domestic routes out of FCO, MXP & LIN.

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