November 26, 2008 / 10:21 AM / 11 years ago

UPDATE 3-Alitalia suitor Lufthansa sets up Italian airline

* Sets up own Italian airline despite Alitalia courting

* Will fly to eight destinations from Milan’s Malpensa

* Closes in on Austrian Airlines takeover next week

(Adds analyst comment, AUA deal expected to be signed Dec. 5)

By Danilo Masoni

MALPENSA AIRPORT, Italy, Nov 26 (Reuters) - German airline Lufthansa (LHAG.DE) will set up its own Italian airline early next year, even as it courts Alitalia, as the battle to make inroads into the lucrative Italian air travel market heats up.

Lufthansa, which is vying with arch-rival Air France-KLM (AIRF.PA) to strike an alliance with Italy’s bankrupt national carrier AZPIa.MI, said its move did not mean it was “closing the door” on its ambitions to tie up with the Italian airline.

The German carrier was also closing in on its planned acquisition of a government stake in loss-making Austrian Airlines AUAV.VI, which Austrian state holding company OeIAG said it planned to sign with Lufthansa next week.

If Lufthansa did lose out to Air France-KLM on Alitalia, its new airline would allow it to pressure Alitalia on its home-turf just as the Italian carrier tries to reinvent itself after years of losses and strikes.

“This move puts the Italians under pressure to act,” LBBW analyst Per-Ola Hellgren said. It also sent a message to the CAI group buying Alitalia that Lufthansa could set up competing operations if it is not picked as foreign partner, he said.

The CAI consortium of top Italian businessmen is buying Alitalia for 427 million euros ($553.5 million) and working to relaunch it as a smaller, more efficient carrier next month.

The airline picked as foreign partner is expected to buy a 20 percent stake, though Lufthansa Chief Executive Wolfgang Mayrhuber said a price or size of stake had yet to be discussed.

At a news conference at Malpensa airport outside Milan, where plans for the new airline were announced, Mayrhuber said the Lufthansa ought to be selected as partner because of its multi-hub strategy and high traffic between Germany and Italy.

Lufthansa’s new airline, which will fly under the “Lufthansa Italia” brand and seek an Italian operating licence, will be based around Milan’s Malpensa hub, where Alitalia has cut back sharply in a bid to reduce costs and turn itself around.

It will fly to eight European destinations, including Paris Charles de Gaulle and London Heathrow. The initial flights will take off in February and the airline will start with a fleet of six Airbus aircraft.

Malpensa will become part of Lufthansa’s multi-hub system under the plans, said Giuseppe Bonomi, chairman of Milan’s airport operator SEA.

Fearing job losses and a hit to the local economy, Bonomi and other Milan officials and politicians had waged a bitter fight to force Alitalia to rethink its plans to reduce its presence at Malpensa.

Lufthansa’s ambitions in Italy are part of its broader plans to grow amid a cut-throat battle in the European aviation market to survive as a recession bites.

The carrier is not actively seeking to sell parts of subsidiary BMI, Mayrhuber said.

He also said he would be “extremely surprised” if the EU blocked a purchase of Austrian Airlines AUAV.VI — where it is the only remaining bidder after Air France and Russia’s S7 dropped out of the race.

Austrian state holding company OeIAG said on Wednesday it expected to rubber-stamp the sale in a supervisory board meeting on Dec. 5 and to sign it on the same day.

As the deal involves the Austrian government assuming 500 million euros of debt from Austrian Airlines, it needs EU approval for this form of state aid on top of a review of the impact on competition. (Additional reporting by Alexandra Schwarz in Vienna and Maria Sheahan in Frankfurt, Writing by Deepa Babington, Editing by Erica Billingham and Andrew Macdonald)

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