JonnyKnoxville
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German carrier circling UAL deal
Lufthansa considers investing if United, Continental merge
By Julie Johnsson | Tribune reporter
February 20, 2008
Lufthansa AG is mulling investing in a merger between United Airlines and Continental Airlines and has discussed taking an equity stake with officials of Chicago-based United, sources said.
It's a sign that the consolidation pursued by U.S. carriers is sending ripples across the Atlantic. Europe's largest airlines, enjoying stable finances and the strong euro, are seeking closer ties with their American partners as both sides prepare for a loosening this spring of trade restrictions on trans-Atlantic travel.
Air France-KLM Group, a Lufthansa rival, already has indicated it would invest in a merger between Delta Air Lines and Northwest Airlines, a deal that sources expect to be announced this week. All three carriers belong to the SkyTeam global marketing alliance, as does Continental.
However, Continental is expected to switch allegiance to the Star Alliance, led by Lufthansa and United, if it consummates a merger with United. The prospect of gaining a strong new alliance partner would give Lufthansa an incentive to invest in the deal, as would the relatively cheap price, given the weak dollar, sources said.
United and Lufthansa declined to comment on the talks. And sources cautioned that the size of Lufthansa's investment, as well as its role in the merger, if any, hadn't been determined.
"We are, of course, watching the developments in the market very closely and have enjoyed a strong relationship with United Airlines as a key Star Alliance partner in the region," said Jennifer Urbaniak, a Lufthansa spokeswoman. "In general, any decisions regarding future investments take into account the synergies that could be realized on behalf of our passengers."
Through numerous meetings, United and Continental have laid the groundwork for a merger that would form the world's largest carrier as they await the outcome of negotiations between Delta and Northwest, sources said.
The talks between United, the nation's second-largest airline, and Continental, the fourth-largest carrier, are expected to accelerate once the Delta-Northwest deal is struck. That would negate Northwest's right to block a Continental merger, a result of an earlier stock transaction between the carriers.
Lufthansa and United have discussed cross-investments in the past, sources said. And Lufthansa is accumulating holdings on both sides of the Atlantic. It owns a nearly 30 percent stake in British Midland Airways, another Star Alliance partner that has a substantial presence at London's Heathrow Airport.
In December, Lufthansa moved to acquire 19 percent of JetBlue Airways, one of the largest tenants at New York's John F. Kennedy International Airport. The German carrier would gain another New York stronghold through Continental, which operates a major hub at Newark International Airport in New Jersey.
Houston-based Continental also has the second-biggest market share across the Atlantic among U.S. carriers and flies to a far wider array of European cities than does United: 28 destinations to United's eight, according to investment bank Credit Suisse.
Those are key assets as Lufthansa and its alliance partners prepare for the new Open Skies treaty, effective this spring, that will loosen restrictions on flights within Europe and across the Atlantic.
Ownership restrictions
The next round of trade negotiations, scheduled for May, will involve a push by Europe to convince the U.S. government to relax its foreign-ownership rules.
Foreign carriers are allowed to hold up to a 25 percent ownership stake in U.S. carriers, though their non-voting stake could reach as high as 49 percent, said Brian Havel, associate dean and director of the International Aviation Law Institute at DePaul University's College of Law.
"These investments are kind of the camel's nose under the tent," said aviation consultant Robert Mann, president of R.W. Mann & Co. "Not this year, because it's an election year, but eventually I expect foreign ownership restrictions will be relaxed. The camel will be able to get fully into the tent."
However, European carriers invested in their U.S. counterparts in the 1990s and eventually sold their stakes without triggering an overhaul in U.S. policy, Havel noted.
The world's leading airlines later banded into three global marketing alliances intended to move passengers and bags seamlessly among members. The partnerships serve as rough proxies for cross-border mergers that are barred, for now.
"Alliances are an inherently unstable, second-best substitute for a merger," Havel said.
Lufthansa considers investing if United, Continental merge
By Julie Johnsson | Tribune reporter
February 20, 2008
Lufthansa AG is mulling investing in a merger between United Airlines and Continental Airlines and has discussed taking an equity stake with officials of Chicago-based United, sources said.
It's a sign that the consolidation pursued by U.S. carriers is sending ripples across the Atlantic. Europe's largest airlines, enjoying stable finances and the strong euro, are seeking closer ties with their American partners as both sides prepare for a loosening this spring of trade restrictions on trans-Atlantic travel.
Air France-KLM Group, a Lufthansa rival, already has indicated it would invest in a merger between Delta Air Lines and Northwest Airlines, a deal that sources expect to be announced this week. All three carriers belong to the SkyTeam global marketing alliance, as does Continental.
However, Continental is expected to switch allegiance to the Star Alliance, led by Lufthansa and United, if it consummates a merger with United. The prospect of gaining a strong new alliance partner would give Lufthansa an incentive to invest in the deal, as would the relatively cheap price, given the weak dollar, sources said.
United and Lufthansa declined to comment on the talks. And sources cautioned that the size of Lufthansa's investment, as well as its role in the merger, if any, hadn't been determined.
"We are, of course, watching the developments in the market very closely and have enjoyed a strong relationship with United Airlines as a key Star Alliance partner in the region," said Jennifer Urbaniak, a Lufthansa spokeswoman. "In general, any decisions regarding future investments take into account the synergies that could be realized on behalf of our passengers."
Through numerous meetings, United and Continental have laid the groundwork for a merger that would form the world's largest carrier as they await the outcome of negotiations between Delta and Northwest, sources said.
The talks between United, the nation's second-largest airline, and Continental, the fourth-largest carrier, are expected to accelerate once the Delta-Northwest deal is struck. That would negate Northwest's right to block a Continental merger, a result of an earlier stock transaction between the carriers.
Lufthansa and United have discussed cross-investments in the past, sources said. And Lufthansa is accumulating holdings on both sides of the Atlantic. It owns a nearly 30 percent stake in British Midland Airways, another Star Alliance partner that has a substantial presence at London's Heathrow Airport.
In December, Lufthansa moved to acquire 19 percent of JetBlue Airways, one of the largest tenants at New York's John F. Kennedy International Airport. The German carrier would gain another New York stronghold through Continental, which operates a major hub at Newark International Airport in New Jersey.
Houston-based Continental also has the second-biggest market share across the Atlantic among U.S. carriers and flies to a far wider array of European cities than does United: 28 destinations to United's eight, according to investment bank Credit Suisse.
Those are key assets as Lufthansa and its alliance partners prepare for the new Open Skies treaty, effective this spring, that will loosen restrictions on flights within Europe and across the Atlantic.
Ownership restrictions
The next round of trade negotiations, scheduled for May, will involve a push by Europe to convince the U.S. government to relax its foreign-ownership rules.
Foreign carriers are allowed to hold up to a 25 percent ownership stake in U.S. carriers, though their non-voting stake could reach as high as 49 percent, said Brian Havel, associate dean and director of the International Aviation Law Institute at DePaul University's College of Law.
"These investments are kind of the camel's nose under the tent," said aviation consultant Robert Mann, president of R.W. Mann & Co. "Not this year, because it's an election year, but eventually I expect foreign ownership restrictions will be relaxed. The camel will be able to get fully into the tent."
However, European carriers invested in their U.S. counterparts in the 1990s and eventually sold their stakes without triggering an overhaul in U.S. policy, Havel noted.
The world's leading airlines later banded into three global marketing alliances intended to move passengers and bags seamlessly among members. The partnerships serve as rough proxies for cross-border mergers that are barred, for now.
"Alliances are an inherently unstable, second-best substitute for a merger," Havel said.
