Lufthansa denies talks with Etihad for merger

Earlier today, I wrote about the possibility that Etihad and Lufthansa were exploring a merger possibility. It looked like a far fetched idea in the beginning, but I’d imagine Lufthansa is following into the footsteps of British Airways/IAG which has an alliance with Qatar Airways, and have 20% of their equity sold over to Qatar as well. You can’t blame Lufthansa for trying to solidify its position by taking in some oil money. And you certainly can’t blame Etihad which has James Hogan on top, an ardent believer of taking stakes in various airlines to have them dance to his tune and have them channel traffic into Abu Dhabi.

Now, Lufthansa seems to have issued a formal denial. Reuters reports:

“A financial stake is out of the question at the moment,” one source, who is familiar with Lufthansa’s plans, said. A source familiar with state-owned Etihad also said Abu Dhabi would not want to pay for a stake in Lufthansa.

The report further quotes this source:

The first source said Lufthansa was talking to Etihad, but about more codesharing and catering cooperation.

It seems Alitalia is at the losing end of this deal if it happens:

Italian shareholders in Alitalia are keen for Lufthansa to invest in the Italian carrier, which is working on a fresh turnaround plan, along with speculation that Lufthansa could take on more of Air Berlin.

But the best part of this report seems to shed light on some other reasons for why this merger can’t happen, which talk beyond the tendencies of the Government to block mega-M&A of German companies. Here is why:

In Europe an airline must be majority-owned by EU investors in order to maintain its traffic rights under international air service agreements.

Lufthansa is currently almost 69 percent owned by German investors but 13 percent is in the hands of U.S. investors and a further 9 percent is owned by other nationalities.

In addition, if Etihad wished to buy more than 30 percent of Lufthansa, it would have to make an offer for the company as a whole according to German takeover rules.

Bottomline

Ultimately I’d like to believe the truth is somewhere in the middle to start with. Etihad does have the penchant and the appetite and the finances to take in a large carrier, and they might just be doing this to get a seat on the table of the big airlines, just like they tried to stitch together their own alliance, which is now going nowhere perhaps. I’d think they would start with a 19%-29% stake and then see where it goes before going all in.

What do you think of this merger? Did the news come out sooner than the airlines would have liked to announce it, or is this just going to die away slowly? I’m keen to hear your views on this in the comments

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