Lufthansa sees AUA takeover despite deeper EU probe

The logos of German airline Lufthansa and Austrian airlines are pictured at Vienna's airport May 12, 2009.

VIENNA (Reuters) - Lufthansa (LHAG.DE) said it was "confident" it could complete its takeover of Austrian Airlines AUA.VI after the European Commission extended its review of the deal, throwing a spanner into the German carrier's plans.

"Due to the fact that a joint venture has existed for many years now between Lufthansa and Austrian Airlines the opening of the in-depth investigation (Phase II) is surprising for Lufthansa," the German company said in a statement.

Lufthansa had stipulated in its takeover offer the deal depended on receiving regulatory approval from the EU by July 31, yet on Wednesday it said it was "confident of receiving the necessary approvals with acceptable conditions" imposed by Brussels.

A spokeswoman for AUA said the Phase II investigation could be completed by month's end allowing a deal to proceed.

Antitrust authorities at the European Commission expanded their regulatory probe on Wednesday, confirming an earlier Reuters report.

"It is essential that airline consolidation does not deprive consumers of a choice of airlines, competitive prices and other benefits of liberalization of air transport in the EU," Competition Commissioner Neelie Kroes said in a statement.

The European Union executive said it was still looking into state support for Austrian Airlines, the subject of a separate Commission investigation.

Kroes said the EU executive would work closely with Lufthansa in the coming weeks to find timely solutions to address its concerns.

The European Union's executive body has up to three months to decide whether the deal hampers competition and to discuss possible remedies with Lufthansa and Austrian Airlines.

But two sources close to the deal said earlier that the Commission would try to make a final decision soon and not exhaust the full three months it formally has.

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A quick decision is crucial for the deal, because under terms agreed in December, Lufthansa can walk away if there is no EU approval by the end of July, or if conditions placed on the deal by the Commission are too onerous.

Shares in Austrian Airlines closed down 7 percent at 3.97 euros on Wednesday as traders said the prospect of an extended probe raised concerns that the delay may scupper the deal.

The European Commission, the Austrian government -- which controls Austrian Airlines -- and the companies held marathon talks this week.

The Commission is still asking Lufthansa -- which just won EU approval to buy Brussels Airlines and has agreed to buy Britain's BMI -- to give up flights and airport slots in order to avoid gains in market dominance.

It had to decide by Wednesday either that the deal does not hamper competition and can be waved through, or that it needs more time to review it, which it often does to consider concessions made by the companies involved.

The EU was also reviewing the state aid that is part of the deal. Austria has agreed with Lufthansa to inject 500 million euros into loss-making Austrian Airlines to help cut the airlines' 1 billion euros debt pile.

No published deadline exists for the state aid review.

(Additional reporting by Christiaan Hetzner in Frankfurt, Foo Yun Chee and Ilona Wissenbach in Brussels)