€1bn cash boost if deal falls through
Austrian Airlines has warned that it will need a €1bn cash boost if its takeover by Lufthansa fails.
Austrian's chairman Peter Michaelis told shareholders the airline would need more than twice the €500m Austrian Government grant promised as part of the deal.
The deal to rescue the struggling airline is under threat after the European Commission (EC) said it needed further concessions to be made by Lufthansa.
The EC, citing competition concerns, has demanded that Lufthansa give up certain flights out of Vienna.
But Lufthansa could walk away from the deal if further concessions on routes and airport slots make the deal uneconomical.
A Lufthansa spokesperson said there was "no doubt" that Austrian would need more money if the takeover fails.
Austrian Airlines was unavailable for comment.
Lufthansa told ABTN it did not want to walk away from talks if EC regulators fail to reach a "quick" decision by the end of July.
But the spokesperson said a takeover would "have to be economical" and fair to Lufthansa and its shareholders.
Last week Lufthansa submitted an "informal" package of concessions which was quickly rejected by the EC.
The EC said the latest package was the same as Lufthansa's previous offer and was unsatisfactory.
Lufthansa said it would not make any further concessions and that it had done whatever it could to make the deal go through.
Unless Lufthansa improves the offer, a decision on the EC's probe into the deal may not be made until early November.
The EC this month began a second investigation into the takeover, citing concerns that competition could be reduced on routes between Vienna other European cities.
The EC last week said that if Lufthansa came up with "satisfactory remedies (to concerns over competition on several routes) within the next few days," the merger could go ahead.
EC spokesperson Jonathan Todd at the time said that if no acceptable plans were put forward by the German carrier, the investigation would not report until November 6.
Under the terms of the proposed takeover, Lufthansa can walk away if the deal is not signed by July 31.
Austrian Airlines recently announced it was cutting around 1,000 jobs by mid-2010 to help make savings of €200m by 2012.
Austrian admitted that cuts had been made this year in the hope that the EC would approve its merger with Lufthansa.
Under the proposed deal Lufthansa agreed to pay the Austrian government €366,268 for its 41.6% stake in its national airline.
The second part of the agreement was that the Austrian state received a "debtor warrant" from Lufthansa which might lead to additional payments.
The last element was that the Austrian government paid Lufthansa €500m for a "capital increase" in Austrian Airlines.
Lufthansa's share offer for Austrian was approved last month by 85% of the shareholders, above the 75% threshold needed under the takeover terms.
The Commission said it was still considering "state support for Austrian Airlines in the framework of a separate investigation under EC Treaty state aid rules."
The EC said its initial investigation, which started in February, "indicated that the proposed acquisition could, on certain routes, give rise to reduced choice of airline services for passengers and the likelihood of higher fares."
It added: "There are therefore serious doubts as to the proposed takeover's compatibility with the Single Market in the absence of appropriate remedies."
www.austrian.com www.lufthansa.com http://ec.europa.eu/index_en.htm