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(Bloomberg) — The fate of Deutsche Lufthansa AG’s €325 million ($354 million) investment into ITA Airways hangs in the balance as European Union regulators push the German airline to make concessions it isn’t prepared to accept.
With the deal deadline just one month away the European Commission has put pressure on Lufthansa and the Italian Finance Ministry to draw up a remedy package that will help to protect competition between airlines on transatlantic routes in particular. This mirrors similar EU concerns over short-haul flights in March.
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However, Lufthansa isn’t prepared to reopen its joint venture with United Airlines and Air Canada to solve the EU’s issues — sparking fears that the carrier may not be able to come up with a package that meets the bloc’s demands, according to a person familiar with the matter.
Uncertainty around the deal approval has prompted the Italian government to shop around for alternative solutions to keep ITA Airways afloat, including an option to have the airline as a standalone company, according to another person with knowledge of the government’s thinking.
“In my opinion we should have closed six months ago,” Finance Minister Giancarlo Giorgetti said Tuesday. “Today, tomorrow, the day after tomorrow. As soon as possible because we need to understand what the future of ITA could be.”
Spokespeople at the European Commission and Lufthansa didn’t immediately respond to requests to comment.
A collapse of the deal engineered by the Italian government would be a significant blow for Prime Minister Giorgia Meloni, who came to power in 2022 on a pro-business platform. The sale of ITA is crucial for Italy’s cash short finances to avoid spending more on the company.
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Lufthansa’s Chief Executive Officer, Carsten Spohr, struck an upbeat note ahead of the formal deadline of July 4. Speaking to reporters in Dubai on Monday, Spohr said he aims to get “some indication this week” on the decision, adding that “it’s realistic to come to a solution this week.”
“And since we are in a very constructive phase of the dialog, I will consider it the final phase of a constructive dialog,” Spohr said at the IATA annual general meeting.
Lufthansa wants to take over the former Alitalia in two stages to gain a stronger foothold in one of Europe’s biggest but also most competitive aviation markets. At this point, Lufthansa is the only interested party, meaning that a breakdown of talks would force the government to start the sale process anew.
Under the terms of the Lufthansa deal with ITA Airways, Cologne-based airline would initially buy 41% of the successor to failed flagship Alitalia from the Italian state, with an option to acquire the rest later. The transaction marks the latest attempt to resurrect the Italian carrier, which officially ceased operations in 2021.
—With assistance from Anthony Palazzo and Siddharth Philip.
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