New "in-depth" investigation to be held
The European Commission (EC) is to extend its probe into the planned takeover of Austrian Airlines by Lufthansa.
The new investigation could last 90 days up to November 6 but the EC is expected to report sooner than that, possibly in two weeks time.
Lufthansa said the decision was "surprising" but both it and Austrian said they were confident the deal would go through.
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."
Neelie Kroes, the EC's competition commissioner, said: "It is essential that airline consolidation does not deprive consumers of a choice of airlines, competitive prices and other benefits of liberalisation of air transport in the EU.
"I hope that, in a spirit of mutual cooperation, we will be able to work closely with Lufthansa in the coming weeks to find timely solutions to these concerns."
The EC said its first probe found that there were "competition concerns" on routes from Vienna to Frankfurt, Munich, Stuttgart, Cologne, Zurich, Geneva and Brussels.
It said that Lufthansa had proposed remedies but while they reduced the problems, they were not enough to clear the merger.
The Commission said it was also still considering "state support for Austrian Airlines in the framework of a separate investigation under EC Treaty state aid rules."
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.
As well as concerns over the price, the EC said at the time of its first probe that it doubted "whether the sale was truly open, transparent and unconditional and whether the State really acted as a market economy investor."
Austrian has made significant cuts in its operation to try and win EC approval for the deal.
These have included Austrian a €225m cost cutting package embracing capacity cuts, short-time working for staff and the suspension of pension fund contributions.
But earlier this week Austrian executive board member Peter Malanik said the original merger plan may not be enough in the current economic downturn.
He said talks with trade unions over possible lay-offs are being held, but could not say when and how many cuts would be made.
The Austrian finance minister Josef Proell was quoted yesterday as saying the situation facing the airline was "too serious to delay a decision from the EU."
Lufthansa had also threatened to walk away from the acquisition if it were further delayed.
But the airline said in a statement last night: "Due to the fact that for many years a joint venture gas existed between Lufthansa and Austrian Airlines, the opening of the in-depth investigation (Phase II) is surprising for Lufthansa.
"Nevertheless Lufthansa remains confident it will receive the necessary approvals with justifiable remedies."
www.austrian.com www.lufthansa.com http://ec.europa.eu/index_en.htm