After a year of pitching, pushing, lobbying, and some five months of exclusive negotiations, Lufthansa and the Italian government have reached an agreement on the partial privatization of ITA Airways. Lufthansa will acquire a 41 percent minority stake in ITA through a capital increase of €325 million, with the option to acquire the remaining 59 percent at a later stage. Lufthansa and Italian government agree on ITA Airways deal.
The agreement was announced after a formal meeting on Thursday between the Italian Minister of Economic Affairs and Finance (MEF), Giancarlo Giorgetti, Lufthansa Group CEO Carsten Spohr, and ITA Airways CEO Antonino Turicchi. The agreement is subject to approval by the Italian Court of Auditors and the European Commission. The latter could impose conditions if competition is affected by the acquisition.
Alongside the capital increase from Lufthansa Group, the Italian ministry will also inject €250 million into ITA Airways. The purchase price for the remaining 59 percent of the shares will be based on the business development of ITA Airways.
The Italian carrier, which was launched in October 2021 as the successor to loss-making Alitalia, should grow its revenues to some €2.5 billion this year compared to €1.6 billion in 2022. In 2027, the airline should generate €4.1 billion in revenues, based on a fleet of 94 aircraft compared to the current 71, MEF says, although ITA says that the fleet will grow to 105 aircraft in 2025. ITA plans to grow its workforce this year to 4.300 thanks to the hiring of 1.200 new staff. In 2027, the headcount should be 5.500.
Fifth network carrier
Once the agreement has been finalized and approved, ITA Airways will become the fifth network carrier within the Lufthansa Group after parent airline Lufthansa, SWISS, Austrian Airlines, and Brussels Airlines. ITA will continue to operate as a standalone airline with its own management and Air Operator Certificate, but will benefit from synergies within the group.
One of these synergies will be the fleet: ITA Airways has double-digit orders with Airbus and lessors for A220s, A320neo’s, A321neo’s, A330-900s, and A350-900s. The A330-900 is the only type not used by Lufthansa Group. ITA will also change alliances and join Star Alliance, having joined SkyTeam only weeks after launching operations in 2021.
In a media statement, the Italian government says: “ITA Airways’ strategy is to establish itself as a protagonist among full-service carriers in the three intercontinental, international and domestic sectors, with particular attention to long-haul traffic. This strategic repositioning will also make it possible to better feed the traffic of the Rome Fiumicino hub, which will thus play a central role in the Lufthansa Group’s multi-hub model.”
ITA Airways and Lufthansa Group share fleet commonality, like the Airbus A350-900. (ITA Airways)
As Carsten Spohr has said on numerous occasions, the Italian market is extremely important to Lufthansa. It represents the third market outside its home markets and the United States for both leisure and business travel. Lufthansa has been keen on getting access to a hub in Southern Europe, where it can generate new traffic by opening new markets in Africa and Latin America.
At the same time, Lufthansa will be confronted first-hand with formidable competition from low-cost competitors Ryanair, Wizz Air, and easyJet. Ryanair’s Michael O’Leary said on Monday that his airline has grown its market share to forty percent and is the biggest airline in Italy.
As Spohr said: “Today’s agreement will lead to a win-win situation for Italy, ITA Airways and Lufthansa Group. And it is good news for Italian consumers and for Europe, because a stronger ITA will invigorate competition in the Italian market. As a young company with a modern fleet, and with its efficient and expanding hub in Rome, ITA is a perfect fit for Lufthansa Group. In Milan, ITA serves a strong catchment area which also offers potential for growth.”
“As part of the Lufthansa Group family, ITA can develop into a sustainable and profitable airline, connecting Italy with Europe and the world. At the same time, this investment will enable us to continue our growth in one of our most important markets.”
Privatization was always the plan
From the start of its conception in November 2020, it was intended that ITA Airways would be privatized at some time in the future. In January 2022, Lufthansa and shipping company MSC Group expressed their interest to acquire a minority stake. Two months later, a consortium of equity investor Certares, Delta Air Lines, and Air France-KLM joined the bidding. The consortium even moved into pole position in August, when it became the preferred bidder of the Draghi government and started exclusive negotiations.
Things changed in November after the general elections in Italy, when the new Meloni Administration showed a preference for Lufthansa Group. By then, MSC Group has exited the bidding, as it didn’t agree with the revised terms of the negotiations. This January, Lufthansa, and MEF started exclusive negotiations that have resulted in today’s agreement.
The Italian government is confident that ITA Airways will continue to fly the Italian flag, even if it gets partially into German hands. (ITA Airways)
Before getting there, discussions focused on the right price. Spohr said in March that he sought a discount on the purchase price of reportedly €300 million after ITA closed 2022 with a €500 million net loss. But instead of lowering the purchase price to €250 million, the final agreement sees Lufthansa pay €325 million for its fifth network airline. During a media conference call on Friday, Spohr will have to explain what happened during the final rounds of negotiations.
“A knot has been dissolved”
The Italian government is happy with the partial sale of ITA. As Minister Giorgetti said: “Today closes a path that has marked the history of the national flag carrier with the prospect of integration with an important European carrier. With this government, today a knot that has conditioned the air transport market in Italy for thirty years is dissolved. We are convinced that this decision will allow the air market to develop in the interest of Italy”.
Still, Carsten Spohr will have to convince many doubters that acquiring ITA Airways is a smart thing to do. They will look at the losses the new airline continues to accumulate and remind him of the billions that have been poured (and lost) into Alitalia by the Italian state and other airlines like Etihad Airways and Air France-KLM.
