Lufthansa bid for Austrian Airlines goes ahead

FRANKFURT Wed Dec 3, 2008 2:41pm EST

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FRANKFURT (Reuters) - Deutsche Lufthansa, launched its bid for struggling Austrian Airlines on Wednesday after the German airline's board approved a plan to make it Europe's biggest carrier.

Frankfurt-based Lufthansa said it would pay as much as 377 million euros ($476 million) in a performance based deal. It revealed its interest in Austrian in August of this year and the pair have been in exclusive talks since November.

The German carrier is to pay an initial 366,000 euros for the Austrian government's 42 percent stake, and may pay a further 162 million euros for it, depending on Austrian's future performance and on the Lufthansa share price.

The outstanding shares not owned by the Austrian government would then cost Lufthansa an additional 215 million euros at 4.44 euros per share, it said.

Shares in AUA climbed 40 percent on the news to 3.70 euros.

Lufthansa said that despite the troubles facing the industry, the outlook for the combined company was good.

"The consequences of the financial markets crisis and its effects on the real economy have a major impact on the aviation industry," Lufthansa said in a statement.

"Structural changes increase the likelihood of Lufthansa and Austrian Airlines sharing a brighter future."

Lufthansa shares were up 0.3 percent at 10.36 euros, unchanged from where they were before the company released the statement.

Airlines throughout Europe including British Airways and Air France-KLM are seeking tieups to better weather an economic downturn due to the finance crisis after having to battle with record fuel prices.

Sluggish consumer spending is chipping away profitability, just as oil prices easing off from record highs are taking pressure off airlines' massive fuel bills.

With the takeover and with British bmi as well as Brussels Airlines -- both of which Lufthansa is about to acquire -- Lufthansa would raise its annual sales to 27 billion euros, overtaking Air France-KLM as Europe's largest airline.

The bid of 4.44 euros per shares hinges on Lufthansa acquiring at least 75 percent of the Austrian airline and the European Commission approving 500 million euros in restructuring aid for AUA from Austria, Lufthansa said.

Lufthansa trades at about 8.5 times its estimated 2009 earnings, at a premium to Air France-KLM and British Airways.

The two peers are also seeking to expand. British Airways is seeking a tieup with Spain's Iberia and Australia's Quantas, while Air France is competing with Lufthansa for a minority stake in Alitalia.

(With additional reporting by Maria Sheahan; Editing by Andrew Callus)

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