17 September 2008

More Mergers Up in the Air

The acquisition or 45% of airline Brussels gives Lufthansa access to the intra-European market, as well as a relatively broad African network, with Lufthansa stating that it initially is buying 45% of Brussels for EUR65 million.

It plans to take the remaining 55% in 2011 when Belgian's bilateral air service agreements with non-EU countries are renegotiated to allow for foreign majority ownership.

The acquisition price will depend on Brussels' financial performance in the next three year, but will not exceed EUR250 million. Synergies are expected to be around EUR50 million from 2011 when the full takeover has been completed.

Brussels has been indicating over the past several months that it is looking for strategic investors with some of its original shareholders opting out.

The airline is built on the former Delta Air Transport regional carrier that was part of the now defunct Sabena group.

The former SN Brussels Airlines merged with Virgin Express in 2006 and was relaunched under its new brand.

Richard Branson's Virgin Group still holds a 30% stake in the carrier, but has now also agreed to finally exit its former low-fare experiment in Belgium.

Brussels is likely only the first of several takeovers in the works at Lufthansa. The company is also seen as the favorite bidder for Austrian Airlines. The government will pick a buyer by the end of October if it sticks to its planned timetable.

British Airways, Air France-KLM and S7 Airlines have also submitted non-binding bids for Austrian late last week. For the first time, SAS Group has also indicated that it is considering a sale as economic circumstances and the company's financial position deteriorate.

Also, it is expected to take majority control of bmi next year, although there have been reports it may be interested in selling its stake.

BA is negotiating a merger with Iberia while Air France-KLM has announced it would take a minority stake in Alitalia if the airline survives.

A Report by Karen Loftus