Lufthansa's planned takeover of Austrian Airlines is facing tough scrutiny by the European Commission that some analysts say could derail the deal.
The Commission said on Wednesday it had doubts that the EUR500 million euros of state aid the Austrian government has earmarked for Austrian Airlines (AUA) as part of the transaction had been kept to a minimum.
Lufthansa in December agreed to buy Austrian state holding company OeIAG's 42 stake in AUA for up to EUR377 million, while OeIAG will take on EUR500 million of AUA's debt.
Following are some of the scenarios that could result from the European Commission investigation:
COMMISSION APPROVES AID
The European Commission could approve the full EUR500 million of planned aid, finding that that amount was necessary to help save the troubled Austrian carrier.
Lufthansa's chief executive said on Thursday that he assumed the aid would be approved, and market observers seemed to agree.
"I see no other options for AUA, and I think the EU will probably take that into account," said Exane BNP Paribas analyst Geoff van Klaveren.
AUA at the end of September had around EUR900 million of net debt, and the airline has said it expected to post a net loss of EUR125 million for 2008 as passenger numbers declined due to the global economic downturn.
"In the current climate (the Commission) would be rather cautious (about interfering) at the end of the day," said a Brussels-based antitrust lawyer who declined to be named because of the sensitivity of the issue.
He also said he saw the Commission exhibiting more flexibility amid the current dismal economic environment.
COMMISSION SAYS AID IS ILLEGAL
The European Union last year ruled that Italian carrier Alitalia had to repay a EUR300 million bridge loan it received from the national government to keep the airline's planes flying.
A similar fate could hit AUA if the Commission finds government plans to assume the airline's debt illegal.
"The worst-case scenario is that they up the ante so much that Lufthansa backs out. But the chances of that happening are fairly low," said LBBW analyst Per-Ola Hellgren.
Lufthansa had made its offer for AUA conditional on approval of the EUR500 million of aid, which means it could drop its bid if the Commission comes back with an unfavorable ruling.
OeIAG said on February 5 that AUA could go insolvent if the planned takeover fell through, and a restructuring program or a possible insolvency would end up costing taxpayers more than the EUR500 million they are expected to shoulder now.
COMMISSION GIVES CONDITIONAL AID APPROVAL
The Commission could give its approval on the condition that the volume of state aid be reduced to comply with EU guidelines and appease opposition to the deal.
"The whole thing could end in more symbolic requirements," LBBW's Hellgren said.
The European Commission requires aid to be kept to a minimum and has in the past required states to reclaim parts of aid given to companies.
"The deal might still close if the net price increase is limited to an amount in the double-digit million euros," Hellgren said.
But Lufthansa's CEO Mayrhuber said on Thursday he had no intention of amending the airline's offer for AUA to appease the Commission.
