Airlines get tough in Europe merger battle
FRANKFURT (Reuters) - European airlines are playing hardball in an increasingly frenetic industry shake-up on Wednesday as Air France-KLM snubbed making an offer for Austrian Airlines and Lufthansa pulled out of talks to buy local carrier TUIfly.
The two continental European giants are jostling with British Airways (BAY.L) as major airlines target smaller rivals in a Darwinian battle for survival driven by the recent economic turmoil.
Austrian Airlines (AUAV.VI) stock plunged as much as 39 percent after Air France-KLM (AIRF.PA) said it had declined to make a binding offer in time for a bid deadline on Tuesday due to the "current financial and economic climate."
Rival Lufthansa filed a bid, a source close to the deal told Reuters in Vienna, and was seen as the only serious contender for the loss-making Austrian airline.
At the same time, Lufthansa pulled out of talks to merge its Germanwings unit with TUI's (TUIGn.DE) low-cost TUIfly airline.
Governments are putting for-sale signs on their national carriers and small rivals are seeking investors to help keep their cash-sucking planes aloft after months of high oil prices.
Consolidation is picking up pace as the financial crisis helps the big players scoop up the smaller pieces off the chessboard.
Sluggish consumer spending has chipped away profitability, just as easing oil prices off record highs promise to take pressure off airlines' massive fuel bills. Austrian Airlines issued a profit warning last week.
Some analysts said Air France-KLM, whose shares fell 3.9 percent in line with the market, could be bluffing by pulling out of the Austrian race. It said that while it had not submitted a binding bid, it was still interested in talks.
"Air France can create counterpressure. That is part of the game," said Juergen Pieper, an analyst at Metzler Equities.
"The Austrian Airlines sale is still in the poker phase."
Alitalia AZPIa.MI and Scandinavian SAS (SAS.ST) are also looking for a prop, with Air France-KLM and Lufthansa both in contention for a slimmed-down version of the Italian national airline and Lufthansa eyeing a stake in SAS.
Most market watchers are unwilling to speculate who will come out on top when the dust settles on the European shakeup.
WATCHING RIVALS
Air France-KLM may be betting that talks with Lufthansa fail and it can jump in to rescue Austrian Airlines at a lower price. Continued...
