By Joanna Plucinska and Andres Gonzalez
LONDON (Reuters) – Europe’s major airlines are targeting smaller deals and tie-ups after facing regulatory push-back against full mergers, focusing on minority stakes to strengthen their position against rivals.
Reuters spoke with two airline executives and others with knowledge of ongoing deals, who said they were pivoting towards smaller stakes to cut expenses and time spent on additional regulatory scrutiny.
The trend towards more bite size deals and tie-ups marks a shift for the region’s carriers, which are trying to unify a fragmented market to compete with rivals in a more consolidated U.S. market and state-funded behemoths in the Middle East.
There has been a flurry of smaller deals. Last month Lufthansa took a 10% stake in Latvian carrier airBaltic for 14 million euros ($14.72 million) to improve its wet lease partnership, an arrangement allowing it to more easily share aircraft, pilots and crew.
Air France-KLM and Lufthansa have expressed interest in taking around a 20% stake in Spain’s Air Europa, sources told Reuters, after British Airways-owner IAG dropped a full takeover plan in 2024 after years of talks.
Air France-KLM and Lufthansa either declined or did not respond to Reuters requests for comment. The stake is valued at 200-240 million euros, according to one source.
Portuguese carrier TAP – still a potential target for a full takeover and valued at about $1 billion – is now in talks to finalise the sale of a less than 50% stake. It has attracted interest from various European airlines, including Air France-KLM, whose CEO said last week that it was ready to present its pitch for the airline’s partial privatisation.
“There does seem to be somewhat of a shift towards taking smaller stakes in target airlines in Europe at present,” said Dudley Shanley, Dublin-based analyst at Goodbody, adding though he still expects consolidation of the market to happen.
“The smaller stakes reduce the regulatory burden and scrutiny in the near term, though they also reduce the ability to extract both revenue and cost synergies.”
European regulators are worried major takeovers will lead to higher air fares and hit consumers, a concern which stymied the IAG-Air Europa deal. Germany’s Lufthansa did finally seal a 325 million euro deal to take a 41% stake in Italian carrier ITA Airways in January, but talks with Brussels over remedies took over a year.
Aviation analyst James Halstead said that smaller stakes allowed airlines to spend less money to “test out the waters”, adding getting past regulators like the European Commission’s Directorate-General for Competition had become “complex and expensive”.
