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Lufthansa gets EU nod for $350 mln stake in Italy's ITA

Lufthansa won EU antitrust approval to purchase 41% of ITA Airways for 325 million euros ($ 350 million) on Wednesday after delivering paths and slots, with the news boosting rival IAG's shares and wish for its takeover of Air Europa.

The deal will enhance Lufthansa's existence in the lucrative southern European market and is one of 3 prominent sector transactions in Europe, highlighting efforts by its airline companies to increase scale to offset increasing operating expense.

Lufthansa CEO Carsten Spohr informed a press conference in Rome that ITA's Fiumicino airport hub gave the group better access to Africa and Latin America which it had much space for development.

Shares in Lufthansa were up 3.27% at 1339 GMT after the statement, with IAG shares up by 4.6% on anticipation that the approval made its takeover of Air Europa more likely to be okayed.

IAG said it was grateful that the Commission recognised the benefits of airline combination.

Regulative scrutiny remains high, however the deal has likely increased self-confidence that airline company M&A can acquire approval, topic to treatments worked out with competitors authorities, stated Ruairi Cullinane, an expert at RBC.

ITA also uses crucial long-haul paths to Lufthansa, which has an option to take full ownership if the Italian airline company's. financial efficiency enhances.

Lufthansa and ITA accepted deliver Italian short-haul paths. to one or two competitors, the European Commission said, verifying a. report. The German airline company has stated it is in talks with. Easyjet and Spanish low-cost provider Volotea.

The combined group will also carry out interlining. arrangements or slot swaps for long-haul routes to increase. frequencies and enhance connections for one-stop flights.

Interlining deals allow private airlines to manage. travelers travelling on schedules needing numerous flights. on multiple carriers.

Lufthansa and ITA will likewise move some of the state-owned. airline's slots for short-haul paths at Milan's Linate airport. to rivals, allowing them to establish a sustainable base.

A Lufthansa representative said the airlines would distribute. 204 slots each week at Linate Airport in Milan in the summer, and. 192 in the winter. That suggests that under the new offer, ITA and. Lufthansa will have less slots than before.

It would also provide better connections for its rivals. at key hubs in North America, specifically Washington, San Francisco. and Toronto, the spokesperson stated.

The bundle of remedies proposed by Lufthansa and the MEF. ( Italy's ministry of economy) on this cross-border offer completely. addresses our competition concerns by guaranteeing that a sufficient. level of competitive pressure stays on all appropriate routes,. EU antitrust chief Margrethe Vestager said in a statement.

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It was not an easy negotiation, with Italy's Economy. Minister Giancarlo Giorgetti saying in Rome that he argued with. Spohr over details till the last minute. ITA would no longer. need state aid as part of the deal, he added.

This is the very best option right now for ITA and for Italy, a. privatisation that goes through Lufthansa which has a multi-hub. technique and wishes to focus on Fiumicino ... this is likewise excellent. for the Italian taxpayer, said Andrea Giuricin, a transportation. analyst at TRA consulting.

The offer can only close as soon as competitors, authorized by the EU. antitrust guard dog, begin running the paths. EU regulators. had been annoyed with its previous accepted offers during. which competitors declined to use up paths and slots since they. said they might not take on Lufthansa.

Lufthansa has actually faced increasing labour costs tied to strikes. previously this year, triggering it to release a profit caution.

Analysts state it will not be simple to restore ITA, whose. predecessor Alitalia faced decades of monetary struggles and. bailouts, and Lufthansa will likely require to make a significant. investment.

Regulators in Europe likewise fret the region's three largest. airline groups - IAG, Air France KLM and. Lufthansa - are ending up being too dominant, potentially hurting. consumer choice and making flying less affordable.

The Commission is taking a look at British Airways-owner IAG's bid. to purchase Air Europa and is likewise set to examine Air France-KLM's. offer to take a 19.9% stake in Scandinavia's SAS.

(source: Reuters)