As per reported by multiple news outlets the aviation industry in Europe is going to enter a revolutionary phase, as the German carrier Lufthansa is in advanced talks to acquire steaks in the newly born ITA Airways s.p.a, which on november 2020 replaced the notorious italian national carrier Alitalia.
Negotiations for the privatization of ITA airways have gone on since a long time, but now the time seems to have come for Lufthansa AG (Aktiengesellschaft) to take the final step in the latest expansion of its ‘wings’.
ITA Airways, a short but dense history.
ITA is the publicly owned italian corporation for air transportation, established in november 2020 and it is controlled by the Italian Ministry of Economics and Finance (MEF). The first flights under ITA airways codes started in October 2021, as they replaced Alitalia, the national carrier for Italy since 1946, formerly nationalized and then denationalized.
ITA has a fleet of 52 planes, employs 2750 people and it has an initial share capital of 20 million euros, entirely owned by the Italian Government. The main figures in the company were Alfredo Altavilla, executive president until his resignation in november 2022, and Fabio Maria Lazzerini, CEO.
The privatization of the company was initially approved in march 2022, after the MEF expressed its positive feedback on the binding offer proposed by two main groups, MSC and Lufthansa. In july of that same year, following the Government crisis that took place in Italy, the procedure was put into a halt, and consequently restarted in the following month, with negotiations among the newly appointed MEF and Centares Management LLC, who were acting together with a consortium including Delta Airlines Inc. and Air France-KLM S.A. Their clause of exclusivity expired in November 2022, when Antoniono Turicchi was also appointed as President. In January 2023 Lufthansa Group AG, with whom acquisition talks had begun in the previous months, officially formalized an offer to acquire a minority stake in the publicly owned Italian carrier, with shares amounting to 35-40%.
ITA’s financial statements were far from promising.
The budget for 2022 reported a net loss of around 486 million euros, approximately 1.3 million per day. Revenues accounted for 1.576 billion euros, out of which 1.272 originated from passenger tickets.
The EBITDA was negative 338 millions, and EBIT sat at around 550 million negative.
The profit before taxes accounted for minus 600 million, and as of december 31st 2022, the cash flow reached 418 million, and the market capital stood at around 524 million.
These financial statements were released when talks with Lufthansa for the acquisition of the company were ongoing. Indeed, the German carrier plans to take control of 40% of the company through capital-rising.
According to the statements released with the financial reports, the budget is coherent with the start-up phase in which the company sits, together with a market still negatively influenced by the covid outbreak. Another factor deteriorating the 2022 budget is to be recognized in the rise of kerosene as a consequence of the Russian-Ukrainian tensions.
Executives stated that the overall performance exceeded forecasts made throughout the year, as the operations management was on point and costs were minimized.
With all that being proclaimed, many wonder why in that same market many other carriers, such as Lufthansa as we will see, were able to record earnings.
Forecasts for 2023 say revenues will most likely increase, thanks to the expansion of the destinations network, made available by the delivery of new airplanes. Hence, operation earnings are expected to experience a significant growth.
Lufthansa, an example of diligence and prosperity.
Deutsche Lufthansa AG is the national airline of Germany, founded in 1953 it has operated ever since. In terms of the amount of passengers carried each year Lufthansa is the second biggest in Europe.
The Lufthansa Group comprises many other subsidiaries, such as Austrian Airlines, Swiss International Airlines and Eurowings, and many more aviation-connected corporations such as Lufthansa Technik and LSG Sky Chefs.
Deutsche Lufthansa has its registered offices and corporate headquarters in the city of Cologne, even though the main operational hubs are the Munich Airport and the Frankfurt am Main Airport.
Lufthansa has always set the benchmark for prosperity and longevity in the aviation industry, and the last financial year was no exception to that.
The financial statements for 2022 saw Lufthansa nearly double its revenue, to a total of 32.8 billion euros, mainly due to the strong increase in the demand for air travel. What is more, the company generated 1.5 billion euros in adjusted EBIT in 2022, returning to a positive result, adjusting the trend of previous years, whose earnings had been eroded by the covid-outbreak consequences on air travel.
The net income was 791 million euros, significantly improving the records from 2021, which brought to a loss for the company, again, as a consequence of the cataclysmic environment in which the aviation industry fell in 2020 and 2021.
These financial data, together with the prestige and reputation that Lufthansa has earned in the aviation industry, have led the Italian government to enter serious acquisition talks with the German giant, hoping they will apply their profitable market strategies to ITA Airways as well.
The acquisition, how it will take place and what will follow.
As of the time this article is being written media reports are buzzing with pieces of information concerning the acquisition. As per reported by multiple newspapers, the agreement is set to take place within this week as only few details need to be addressed between the MEF and Lufthansa for the final acquisition of a 40% stake in ITA Airways.
According to Leonard Berberi, Corriere della Sera, L’Economia, the final agreement is set to be signed on thursday may 25th, and as per above mentioned, Lufthansa will act as a key shareholder in the company, entering with an investment with a total share of up to 40%, in order to increase with time to at least 90%, hence gaining full control of the company.
The German Group will enter equity via an increase of share capital, as per agreed in the last privatization decree, the amount of capital initially invested should amount to 330 million euros. Then in 2026 ITA should reach the Break Even Point according to estimates, and at that point Lufthansa will activate the clause to acquire another 50% stake in the company at around 500 million euros. The Italian Government will still be a shareholder, although its share will shrink to approximately 5/10%.
The agreement for the acquisition ought to be approved by the EU Antitrust institutions, in order to avoid excessive concentrations in the aviation market in Europe.
Once the agreement is approved by these institutions, Lufthansa will start operations, optimizing connections, improving commercial activities and further reducing costs, before including ITA into the Lufthansa Group and the Star Alliance partnership.
A word from the authors
Many shareholders in Lufthansa, which is publicly listed in Frankfurt, were unsatisfied with the company’s choice of acquiring ITA airways, since they fear it could compromise the operations and profitability of the Lufthansa Group as a whole. As Lufthansa’s CEO stated in response to these allegations, ITA Airways is not an exact replica of its predecessors, and the managing errors that were committed in the past could now easily be avoided.
This acquisition could therefore bring to a positive new start for the italian aviation industry, which has seen many players but no real winner over the past. ITA Airways could hence highly benefit from the experience and the reputation that come with being part of the Lufthansa Group, which would at the same time benefit from the broader expansion of its roots to the italian peninsula.
As a conclusion, the premises ahead of this acquisition seem to be positive from viewpoints, but only the future will tell if Lufthansa will be able to replicate its market strategies and the success of its group’s members also to the historically troubled Italian aviation environment.
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