June 29, 2009 / 9:17 AM / 10 years ago

EU may delay Lufthansa/AUA deal: sources

VIENNA (Reuters) - The European Union is asking Lufthansa (LHAG.DE) for more concessions to approve its purchase of Austrian Airlines AUAV.VI, Austrian government sources said on Monday, possibly putting the deal at risk.

The sources, which are familiar with the situation, said it was looking as if the European Commission, the EU’s executive body, would not rubberstamp the deal this Wednesday, when a deadline expires, but look more closely into the deal.

“There were demands (by the Commission) that AUA cuts more flights than initially offered, and those demands are now being looked at by AUA’s management in cooperation with Lufthansa,” one of the sources, which declined to be identified, told Reuters.

“They could still approve the deal in July, but the big question mark is if it is still attractive for Lufthansa under those conditions,” the source said.

Lufthansa agreed in December to buy state-controlled Austrian Airlines (AUA) in a deal that also includes 500 million euros ($700 million) in state aid by the Austrian government to reduce the loss-making airline’s 1 billion euro debt pile.

It needs EU antitrust approval for the acquisition as such, as well as approval of the state aid.

Lufthansa has said from the outset that it would walk away from the deal if EU conditions were too onerous. Chief Executive Wolfgang Mayrhuber last week reiterated he was not interested in buying what he called a “little AUA.”

Lufthansa declined to comment on Monday but reiterated that if there was no EU approval by July 31, it could walk away from the deal. AUA and OeIAG declined to comment.

The second government source confirmed that approval will probably not be granted when the Commission meets on Wednesday. “It looks as if the decision will be postponed again,” the second source said.

If the deal falls through, analysts expect that AUA will need a significant cash injection in order to survive, and AUA management has said it would have to cut its fleet by as much as half its current size if it had to operate alone.

Shares in AUA fell as much as 6 percent to 4.10 euros on Monday, while Lufthansa shares rose as much as 2 percent to 8.90 euros.

($1=.7143 euros)

Additional reporting by Eva Kuehnen in Frankfurt and Eva Komarek and Sylvia Westall in Vienna; Editing by Mike Nesbit

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