The transaction sounds daring but promising. Together with the MSC shipping company, Lufthansa is examining entry into the Alitalia successor ITA. This would mean that the group would be at the forefront of the restructuring of the aviation industry after the pandemic.
Getting started after the pandemic: Joining ITA would offer Lufthansa new options in the passenger and freight business.
Since the beginning of the Corona crisis, Deutsche Lufthansa has left no doubt that it is one of the winners of the pandemic and wants to strengthen its position among the world’s leading airline groups. After demonstrating just how serious it is to management over the last few quarters, management put an exclamation mark this week. On Monday evening, the container and cruise shipping company Mediterranean Shipping Company (MSC) announced that it wanted to take over the majority of Alitalia’s successor ITA, which had been freed from contaminated sites, together with Lufthansa as a commercial partner. The Lufthansa Group, to which Swiss also belongs, does not lose any time when making important decisions for the phase after the pandemic.
repayment of state aid
In 2020, the company, which was healthy and well positioned before the outbreak of the pandemic, had to resort to taxpayer help and had been partially nationalized. The CEO Carsten Spohr and his team were very grateful for the help, but they wanted to get rid of the state as quickly as possible from the start in order to enjoy full entrepreneurial freedom. The Lufthansa Group only used 3.8 billion euros of the state aid measures and loans totaling up to 9 billion euros; including the entry of the state as an anchor shareholder.
Last November, the company then repaid or canceled a loan from the state development bank KfW and two silent participations – much earlier than planned. This was made possible by the increasing demand for air travel, the rapid restructuring of the company and the reorganization of the group. At the same time, the Group raised new equity and debt capital from private investors on the capital market. At the end of the third quarter, the group’s pro forma liquidity was already back at an impressive 8.5 billion euros, and Berlin only held a 14 percent stake in the company. A transaction therefore seems financially feasible, especially with a strong partner like MSC.
Interesting threesome transaction
With the rapid restructuring and repayment of the aid, Lufthansa operated with foresight, because investments, mergers and takeovers are only possible after the government loans have been repaid. They are important in order to play a leading role in the expected post-pandemic consolidation of the airline industry, when many state-bailout companies will have to pay back their loans and interest. How important these steps were can now be seen in the planned entry into the Italian ITA, the successor to the bankrupt Alitalia, together with the MSC. Although the shipping company is based in Geneva, it still belongs to the Italian family around the founder and captain Gianluigi Aponte.
The transaction, which is still at an early stage, sounds interesting and promising – and seems to offer attractive benefits for all parties involved. The Italian state, which currently fully owns ITA, could privatize the airline, effectively keeping it Italian-owned with MSC, while still remaining a minority shareholder. The Lufthansa Group with its Star Alliance would be an attractive new home for ITA and would open up new strategic options. The latter are also suitable for MSC and Lufthansa, both in the freight and in the passenger business. On paper, this makes for a win-win-win-win situation, although in practice it may end up being more complicated.
New strategic options
However, Lufthansa has shown that it can handle difficult negotiations and acquisitions. Those involved now have an estimated 90 working days to set up a commercial strategy that works for everyone. Lufthansa, for example, could supplement its network with that of ITA, find new strategic options for the route to Africa and reduce the pressure of competition between the hubs in Munich and Milan. Thanks to the freedom she has regained, she would strengthen her power in European competition – and thus be one of the winners of the crisis.