EU Probes Lufthansa Plan To Buy Austrian Air

The European Commission on Wednesday launched an investigation into Lufthansa's takeover of Austrian Airlines as it questioned the price and planned restructuring.

Lufthansa signed a deal for the purchase of loss-making Austrian Airlines (AUA) in December, expecting the move to make it Europe's biggest airline.

European airlines, including British Airways and Air France-KLM, are seeking tie-ups to better weather the economic downturn and slump in demand. "The European Commission has today decided to open the formal investigation procedure into the privatisation and restructuring of Austrian Airlines whereby it will be taken over by Lufthansa," the EU executive said in a statement.

"The Commission expresses doubts that the price to be paid by Lufthansa reflects the market price for what is being sold," it said. The Commission, the European Union's executive arm, has the power to block mergers across the 27-nation bloc if they violate its competition rules or involve illegal state aid.

Lufthansa said it was cooperating in the investigation.

Austrian state holding company and key AUA shareholder OeIAG, which earlier this month warned that a failed deal could lead to the airline's insolvency, said it remained optimistic.

OeIAG continues to expect the Commission to approve the deal, spokeswoman Anita Bauer said. Under the deal, Lufthansa agreed to buy OeIAG's 42 percent stake in AUA and take over the airline completely for up to EUR377 million euros (USD$487 million).

The transaction, which needs approval from the Commission, also involves the Austrian state assuming around EUR500 million of Austrian Air's debt.The Commission said it had doubts on whether the amount of aid had been kept to a minimum and whether Austria's restructuring plan would restore AUA's long-term viability without the need for more funds in the future.

Lufthansa has said it expects to launch the public tender for shares in the last week of February. Its bid is conditional on reaching a 75 percent stake.Last month, the Commission started an investigation into Lufthansa's proposed takeover of Belgian rival Brussels Airlines due to competition concerns.

Source: AirWise