The European Commission has launched an investigation into claims that Germany’s Lufthansa may not be paying enough for Austrian Airlines in its bid to create Europe‘s largest carrier, in a deal in which the German carrier bought the airline for a token price. In a statement, the European Union executive in Brussels expressed “doubts that the price to be paid by Lufthansa reflects the market price for what is being sold.”

The Commission said it was also worried that the sale had not been “truly open, transparent and unconditional” and questioned whether the state “really acted as a market economy investor.“ In December, 2008, Lufthansa agreed to buy a 41.56 percent stake in the struggling carrier from Austria’s state holding OeIAG for only 366,268.75 Euros (USD 474,721,) after a number of bidders had ceased their interest and it appeared the struggling Austrian airline would go under.

But, in return for Lufthansa stepping in after a deadline, in what the Commission is probing to see if it was an unlawful deal-sweetener,, the Austrian government agreed to take over 500 million Euro of the airline’s debts, which total 900 million Euro. Once approved, the deal would create Europe’s largest airline in terms of passenger numbers, slightly ahead of French-Dutch carrier Air France-KLM. However, if the Commission rejects the takeover, Austrian Airlines would have to be downsized significantly, the state holding’s Chief Executive, Peter Michaelis, said.

The Commission said its main concern is that the Austrian government’s terms may have been too generous. It said it also has doubts as to whether the restructuring plan submitted by Austria “will restore the longterm viability of the company in the shortest possible time and without the need for additional aid in the future.” Reacting to the news, Austrian Vice Chancellor and Finance Minister Josef Proell said the government would do “everything to clear up these issues and to dispel concerns with our arguments, so that Austrian Airlines, Lufthansa and OeIAG can implement the transaction.”

To fend off bankruptcy, Austria’s ailing flag carrier announced a package of cost-saving measures at the end of January, including a cut in the number of flights and the suspension of contributions paid into its workers’ pension fund. The Commission, the European Union’s executive arm, has the power to block mergers across the 27-nation bloc if they violate its competition rules or involve illegal state aid. Lufthansa has said it expects to launch the public tender for shares in the last week of February. Its bid is conditional on reaching a 75 percent stake.

In January, the Commission started an investigation into Lufthansa’s proposed takeover of Belgian rival Brussels Airlines due to competition concerns and said it also suspected that the deal could violate EU subsidy rules that restrict government handouts for businesses that risk collapse and rules that require governments to act like normal market investors. Austria came under fire for possibly paying too much to the airline and for the way it plans to restructure the business. The EU said it doubted that this would make the company viable in the longterm and able to survive without more public money.

source: http://www.neurope.eu/articles/92622.php