Austrian Airlines takes off into new future with Lufthansa

The Supervisory Board of ÖIAG gave a green light to the sale to Lufthansa of ÖIAG’s 41.56 percent share in Austrian Airlines. The signing of the contract took place after a meeting of the Supervisory Board of ÖIAG.

The acceptance of the Lufthansa bid is the result of a bidding process launched on 13 August 2008 in accordance with EU privatisation guidelines. The process was structured and carried out by ÖIAG and investment bank Merrill Lynch.

Peter Michaelis, Chief Executive Officer of ÖIAG, made the following statement about the conclusion of the transaction: “The sale we have concluded today is the right decision both for Austrian Airlines and for the business location surrounding Vienna International Airport in general. Partnership with Lufthansa consolidates the status of Austrian Airlines as a leading carrier in Central and Eastern Europe. At the same time, Austrian Airlines will remain a legally independent company, with its head office in Austria and its own brand, crew and fleet. In addition to this, the Lufthansa concept provides for the preservation of the long-haul connections that are so important for the location. The affiliation between Lufthansa and Austrian Airlines therefore offers stability and opportunities for the Vienna hub and for the location as a whole. The Austrian core shareholder structures are to be created by means of a private foundation, the role of which will be to safeguard Austrian interests. ÖIAG has therefore fulfilled the privatisation mandate issued by the Federal Government, and the bidding process, while in turbulent circumstances, has served to produce a desirable result.“

The Chairman of the Executive Board and CEO of Lufthansa, Wolfgang Mayrhuber, emphasised the benefits for both airlines and the location: “Europe needs a strong aviation sector. Only by combining our powers can we hope to find an answer to the global challenges currently facing our industry. For European business and Europeans as a whole, it is vitally important that we create an airline alliance consisting of profitably operating airlines. This is the only way we can hope to provide an infrastructure that meets the demands of customers. The consolidation of Lufthansa and Austrian Airlines is another step along this path. It enables us to strengthen our joint competitive position, and makes us the strongest carrier in Europe. Austrian Airlines will be in a position to benefit from the economies of scale, market presence and competitive strength of Lufthansa – whilst at the same time maintaining extensive autonomy in key areas. Integration into our multi-hub system strengthens the product of Austrian Airlines, and can also offer Vienna International Airport good opportunities.

We also want to be quite clear about one thing, however: Austrian Airlines must become profitable again. If it is to do this, all those involved must make a contribution. We are making a considerable commitment with the transaction announced today – and are happy to do so. The Austrian Federal Government has also announced its intention to offer support. We also expect this solidarity and responsibility for the future of Austrian Airlines from all other partners, as only in this way can we build a strong, long-term perspective for this well-established airline. The Lufthansa family is very much looking forward to the arrival of Austrian. The two companies already know one another from their successful cooperation in recent years as partners within the Star Alliance. We are all extremely proud to have been selected in the course of the bidding process, and look forward with excitement and confidence to building a successful future together.“

Austrian Airlines will remain a broadly independent airline with its head office in Austria, its own brand, fleet and crew, and will be managed as a profit centre in the Lufthansa Group. Lufthansa has agreed to maintain Austrian air traffic infrastructure to the greatest possible extent, taking into consideration the needs of Vienna as a business location, as well as continuing to expand this wherever commercially viable in line with the needs of the market. Austrian Airlines will retain a presence in the intercontinental aviation sector with its own long-haul fleet, and contribute its own specific key competence to the Lufthansa Group by continuing to build upon its Focus East strategy. At the same time, however, the consolidation with Lufthansa will also enable Austrian Airlines to develop its presence in European air traffic.

Apart from improved access to international passenger flows and joint international marketing, the benefits for Austrian Airlines will consist of using the cost advantages and economies of scale that will result from integration into the Lufthansa Group. Total synergies on the revenue and costs side are estimated at around EUR 80 million p.a.

Austrian Airlines CEO, Alfred Ötsch, made the following statement about the decision: “We are pleased that it has proven possible to reach an agreement between ÖIAG and our alliance partner of many years, Lufthansa. The strategic concept removes our structural weaknesses, such as a lack of international sales strength and disadvantages in purchasing. Together with our own measures, this will enable the almost total retention of our network strength. As a result, the benefits for our customers can be retained. None of this would have been possible – even with a great deal of additional capital – had we tried to go it alone.”



Details of the transaction

Lufthansa will acquire all of ÖIAG’s shares in Austrian Airlines at a price of EUR 366,268.75. ÖIAG will also receive a debtor warrant providing for a profit share based on the economic development of Austrian Airlines and the share price of Lufthansa compared to other airlines after three years. The maximum revenue from the debtor warrant is EUR 162 million, and corresponds to the price of the public takeover offer. At the same time, Lufthansa will receive a payment of EUR 500 million to compensate for the negative shareholder value of Austrian Airlines. As Lufthansa announced on 3 December, the company expects to submit a takeover offer to all shareholders in Austrian Airlines in the spring of 2009 at the average share price for the past six months of EUR 4.44 per share. This takeover offer depends on the fulfilment of defined conditions, the probability of which cannot be estimated at this point. The aim is to take over a majority shareholding in Austrian Airlines.

Execution of the contract concluded today depends in particular on the suspensive condition of a resolution by the Council of Ministers of the Austrian Federal Government, and approval by the European Commission of the contract under Competition Law, and of restructuring aid of EUR 500 million being paid by the Republic of Austria.



Expected timeplan

16 December: Resolution by Council of Ministers regarding payment of EUR 500 million by ÖIAG

Spring 2009: Public takeover offer of free float shares; Approval under cartel law expected; Conclusion of assistance process expected

From closing: Staged operative integration