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Etihad, Lufthansa in talks to merge airlines

Etihad, Lufthansa in talks to merge airlines | REUTERS

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REUTERS -- Germany's Lufthansa (LHAG.DE) and Etihad Airways are in talks to possibly merge the two airlines, Italian daily Il Messaggero said in an unsourced report on Tuesday.

According to the paper, managers from both companies have for weeks been examining the possibility of Etihad taking a 30-40 percent stake in Lufthansa via a capital increase reserved for the Abu Dhabi state-owned airline.

In a second step, the two airlines would look at a full-blown merger to create a carrier with 97 million passengers a year, the paper said. It added the parties would meet shortly to speed up the talks.

A spokeswoman for Lufthansa declined to comment on "speculation". Etihad had no immediate comment.

Any combination between the two would likely have an impact on loss-making Alitalia [CAITLA.UL], which is 49 percent-owned by Etihad and is in the midst of a major restructuring that will likely include job cuts and grounding of planes.

Lufthansa shares were up 3.9 percent on Tuesday morning, topping the DAX .GDAXI index of largest German companies.

Lufthansa managers have repeatedly said in recent weeks in response to questions about consolidation that the group currently has its hands full integrating 38 crewed planes being leased from Air Berlin (AB1.DE), which is part-owned by Etihad, plus taking over Brussels Airlines.

(Reporting by Agnieszka Flak in Milan, Victoria Bryan in Berlin and Alexander Cornwell in Dubai, editing by Louise Heavens)

So how would an EU airline, subject to stringent EU competition regulations merge with another airline that is so heavily state sponsored?

Once Mr. Trump enters the White House you may just find that airlines that owe their success almost entirely to state sponsorship find life rather more difficult in the world marketplace.

It's only an EU airline if it's at least 51% owned and controlled by EU nationals. Competition considerations would likely require TATSNBNOP (That Airline That Shall Not Be Named On PPRuNe) divest itself of some of it's existing European holdings. LH likewise might have to give up some of it's holdings as well.

Possible that LH will take over AZ entirely if that's the case. EY and LH could then take a stake in each other. Very likely a response to QR's increasing interest in IAG and LHR. Next move to EK I'd imagine. .....AF/KLM I wonder? Certainly the competition authorities will lay down a number demands from all interested parties. Intriguing times ahead if it's true.

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Once Mr. Trump enters the White House you may just find that airlines that owe their success almost entirely to state sponsorship find life rather more difficult in the world marketplace.

All of the major US airlines have enjoyed state sponsorship over the decades. Remember how they received big mail transport contracts in thr 1920s and 1930s? Then the postwar CAB permitted fare collusion to ensure that everyone made a profit ( whilst at the same time railing against IATA ).

Post-deregulation that was superceded by more subtle support, such as antitrust decisions permitting weak ones to merge, Chapter 11 protection that allows persistently unprofitable ones to dump debt or the State Department negotiating favorable international treaties on their behalf.

There's not one surviving pre-1980 airline in the USA that didn't enjoy success as a result of state sponsorship.

Until JetBlue or Spirit ( ugh! ) starting flying internationally the USA can't criticise any other international airline's support.