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  • Tuesday, 05 November 2024
Lufthansa's Risky Bet on ita: EU Decision Looms

Lufthansa's Risky Bet on ita: EU Decision Looms

The recent acquisition move by Lufthansa, Germany's flagship airline, to purchase a 41% stake in Ita, Italy's struggling national carrier, has stirred mixed reactions among investors and industry analysts. Valued at €325 million ($350 million), the deal is uncertain, with the European Union yet to grant its regulatory approval. This delay, coupled with speculations, has adversely affected Lufthansa's stock performance.

 

Troubled History of Ita (formerly Alitalia)


Founded in 1946, Italy, formerly known as Alitalia, has faced perpetual financial turbulence throughout its history. Remarkably, it has only managed to achieve profitability three times since its inception. The Italian government's privatization efforts in 2009 faltered, leading to subsequent renationalization in 2020.

 

Previous Stakeholders' disappointment


Previous attempts by other major airline players to rescue Alitalia ended in disappointment. Air France-KLM and Etihad Airways, both having held minority stakes in the carrier at different times, eventually wrote off their investments. This history of failed rescues underscores the daunting challenge that Lufthansa now faces with its own sizable investment.

 

Financial Strain Amidst Pandemic


The COVID-19 pandemic exacerbated Italy's financial instability, prompting extraordinary government intervention. Reports indicate that approximately €3.5 billion ($3.78 billion) is into the airline to prevent its collapse, amounting to roughly €300,000 per employee. Despite these efforts, the underlying financial health of Italy remains precarious, raising concerns about the sustainability of Lufthansa's investment.

 

Market Reaction and Investor Sentiment


News of Lufthansa's stake acquisition in Italy has triggered a sharp decline in its own share price. Investors appear skeptical about the potential returns from this risky venture, especially amidst ongoing uncertainties regarding EU regulatory approval. The market sentiment reflects broader doubts about the wisdom of such a substantial investment in a chronically troubled airline.

 

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