Lufthansa To Decide On Alitalia By Year-End

November 26, 2007

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Lufthansa will decide by the end of the year whether to bid for Italian airline Alitalia, Lufthansa Chief Executive Wolfgang Mayrhuber told a German newspaper.

"Italy naturally is an important and a big market," he said in an interview with Frankfurter Allgemeine Sonntagszeitung.

"Alitalia has big and barely manageable problems. We are studying whether we can find a recipe (to handle these) and make a bid. I expect a decision on whether we will make a bid by the end of the year."

Apart from Lufthansa, Air France-KLM and Italian Air One are in the bidding for Alitalia after Russia's Aeroflot dropped out.

Alitalia has a market capitalization of about EUR1.2 billion euros (USD$1.78 billion) and makes loss of EUR1 million per day.

The Italian government just under a year ago started sales procedures for its 49.9 percent stake in the carrier.

An auction of its stake in July failed when all interested parties pulled out, presumably because they found conditions tied to the deal unacceptable.

Mayrhuber in the newspaper interview also commented on a row with Russia about overflight rights for Lufthansa's cargo planes.

A transition agreement lifting Russia's initial ban on Lufthansa planes flying over its territory is in place while the conflict is being resolved, but it expires at the end of next February.

"We would therefore welcome it if negotiations could take place as early as December," Mayrhuber said.

Russia wants Lufthansa to stop using the Kazakh airport of Astana for refueling and for Lufthansa to move its regional cargo transit hub to Krasnoyarsk in Siberia, as previously agreed.

Mayrhuber said Krasnoyarsk currently did not meet all operational, technical and commercial requirements but if this was the case, it could become attractive as a hub.

But it might take up to two years to make the necessary changes, he said.

Businessman Boris Abramovich, a Russian Lufthansa partner and Krasnoyarsk co-owner, said in an interview with the Welt am Sonntag newspaper he believed the necessary changes could be made in two or three months.

Abramovich's AirUnion has applied for membership of the global group of 17 air carriers, Star Alliance, and seeks to link up its internal flights with Lufthansa via code-sharing.