DealZone

Lufthansa flies into Ryanair’s sights

You’ve got to admit that when Ryanair’s chief executive Michael O’Leary (left) told journalists in London on Tuesday that the low-cost airliner was studying a bid to buy Germany’s flag carrier Lufthansa, he must have meant it as a joke.

For Ryanair to acquire Lufthansa is a bit like taking ice to the North Pole: a bit far-fetched now, but certainly plausible in the near future. “We are having a serious look at Lufthansa. We could almost buy it for cash,” O’Leary confidently told the media.

But he also qualified those comments with his usual effusive charm, saying: “We are not planning any bids for Lufthansa in the foreseeable future, but it is the only one of the other three large airlines that we would be interested in.”  That rules out British Airways, which is still in merger talks with Iberia. O’Leary doesn’t want the hassle of its pension fund. It also excludes Air France-KLM, the world’s largest airliner by revenues.

Despite Ryanair’s market capitalisation being almost as big as those two other carriers combined, it is nevertheless Lufthansa’s cheap market price that O’Leary says attracts him.

But even he has tacitly admitted that he has missed the most opportune moment to make a bid approach.
While Lufthansa’s shares have taken a bashing during the current economic downturn, they are already on their way back up, in line with the DAX-30. In March, Lufthansa’s shares hit a low point of €7.90. Now, they are hovering around €10. Nevertheless, with Ryanair’s market cap at €5.4 billion and Lufthansa’s at €4.7 billion, a paper merger is still plausible, with Ryanair taking majority control, but only if Lufthansa’s shareholders and the German state were to give their approval.

European airlines merging, U.S. talks to take off next?

airfrance-alitaliaEuropean airline mergers, long expected, are now taking wing.

Air France-KLM in January bought a 25-percent stake in Alitalia after a failed attempt at buying the entire carrier last year. The airline fought it out with Lufthansa, which lost the battle but didn’t sit around moping. It quickly launched Lufthansa Italia, which took its maiden flight a few days ago.

Ryanair, Europe’s largest discount airline, has withdrawn its bid for Aer Lingus after the irish government rejected the $1 billion deal. Ryanair is now expected to look for alternative targets.

British Airways remains in merger talks with Spain’s Iberia. Those talks have become complicated by the pound’s recent slide against the euro, making Iberia’s market capitalization now higher than BA’s.