Austrian-Lufthansa Deal Could Still Fail

Austrian Airlines executive board members Andreas Bierwirth and Peter Malanik believe that the takeover by Lufthansa could still fail.

The German airline could still back out of the deal if the European Commission imposes tight conditions on it or if Austrian burns too much cash to fund ongoing operations, the two executives told reporters in Vienna.

However, they insist that Austrian will not run out of money any time soon. “There is no liquidity problem,” says Bierwirth. The two managers replaced CEO Alfred Oetsch, who was ousted in late January.

The company nevertheless was forced to pull forward its annual shareholder meeting, according to Austrian company law. The cumulative loss for 2008 and January 2009 exceeded half of its €264 million capital. Austrian law requires companies to notify its shareholders and call for a stakeholder assembly. The airline’s guidance was for an operating loss of up to €125 million, excluding extraordinary items. Including those, the loss is expected to exceed €400 million as the airline is writing down the value of its fleet due to the current market conditions.

Austrian was given a €200 million loan by previous main shareholder OEIAG that is supposed to bridge the gap between the signing and closing of the Lufthansa deal. Bierwirth warns that Austrian might be forced to draw on the loan to meet operating expenses, rather than pay down due debt. That would make worse the business case for Lufthansa, which could still opt out. The airline is also facing a possible delay of EC approval. The commission has two separate investigations to complete: one has to clarify whether a €500 million capital increase to pay down debt is state aid, and the other is looking into the competition implications of the takeover. Originally, approval for both was expected around April, but that seems no longer likely, given the EC detailed criticism of the takeover contract when it opened proceedings.

Bierwirth says that Austrian expects revenues to decline by 15% in 2009. That shortfall is to be compensated by an equivalent cost-cutting program totaling €225 million. It consists of network cuts, internal cost reductions and renegotiations of supplier contracts. Bierwirth points out that it is key to reach the targest as soon as possible in order not to violate Lufthansa’s business case.

Photo: Keith Gaskell