Lufthansa - Austrian Airlines Merger

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  • Topic: Lufthansa, Austrian Airlines, Star Alliance
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2011
Final Paper: Lufthansa Austrian Airlines Takeover

Linda Iroegbu (0301682) International Mergers and Acquisitions Course Number 2083 SS 2011 02.05.2011

Final Paper: Lufthansa Austrian Airlines Takeover

Table of contents
Introduction .................................................................................................................. Issue 1 Business overview and advantages for Lufthansa ………………..……………….….. Issue 2 Logistical analysis …………………………………………..……………………..… Issue 3 Legal and regulatory implications ……………………....…………………………… Issue 4 Comments on condition precedents no. 1, no. 3 and no. 5 ………………………....... Issue 5 Current status ………………………………………………………………………...... Sources ........................................................................................................................... 10 13 10 8 5 3 3

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Final Paper: Lufthansa Austrian Airlines Takeover

Introduction
Deutsche Lufthansa AG and Austrian Airlines have been cooperating in a Joint Venture since March 2000. This cooperation included full coverage of all routes between Austria and Germany, based on comprehensive mutual code- and profit sharing. As Austrian Airlines has also been a member of the Star Alliance, while offering joint services for consumers, they have also been cooperating closely as partners within the framework of the initially granted Anti Trust Immunity. In view of the present circumstances in regards to the financial state of Austrian Airlines and the close relationship between the two airlines, this report will evaluate the key issues regarding Deutsche Lufthansa AG‟s intention to acquire Austrian Airlines.

Issue 1: Business overview on the advantages for Lufthansa
On a functional level, the integration of the sales and service network between the Deutsche Lufthansa AG and Austrian Airlines AG would mean that functional operations could be centralized to cut costs, which is beneficial for both parties involved. In essence, Lufthansa and Austrian Airlines could focus on retaining those aspects of their operational strengths while the most inefficient aspects could be cut. The merger presents Deutsche Lufthansa AG with the opportunity to take advantage of economies of scale. In an official statement, you as the Chairman of the Executive Board and CEO of Lufthansa, emphasised the benefits for both airlines and the location: "Europe needs a strong aviation sector. Only by combining our powers can we hope to find an answer to the global challenges currently facing our industry. For European business and Europeans as a whole, it is vitally important that we create an airline alliance consisting of profitably operating airlines. This is the only way we can hope to provide an infrastructure that meets the demands of customers. The consolidation of Lufthansa and Austrian Airlines is another step along this path. It enables us to strengthen our joint competitive position, and makes us the strongest carrier in Europe. Austrian Airlines will be in a position to benefit from the economies of scale, market presence and competitive strength of Lufthansa - whilst at the same time maintaining extensive autonomy in key areas. Integration into our multi-hub system strengthens the product of Austrian Airlines, and can also offer Vienna International Airport good opportunities [..]” (Lufthansa, 2008).

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Final Paper: Lufthansa Austrian Airlines Takeover It was recorded that Austrian Airlines transported a total of 10.7 million passengers in 2008, with its fleet of 99 aircrafts. Still, it is estimated that Austrian Airlines run at a loss of approximately EUR 166.6 million in the first half of 2009 which added to the significant amount of debt it has already incurred. This and many other factors make it evident that in the long term, Austrian Airlines would certainly need a merger to still be part of the European airline industry, which will be materialised through Deutsche Lufthansa, if the merger is successful....
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