Lufthansa "offers to drop Vienna routes"

Details of proposal leaked

Lufthansa has offered to give up slots on routes from Vienna to key European cities as part of its bid to takeover Austrian Airlines.

The German airline confirmed it would free up some flights in an attempt to allay European Commission (EC) competition concerns but has so far not given details.

But a report on the Dow Jones newswire cited by the Wall Street Journal claims to have seen a document naming specific routes between Vienna, Stuttgart, Cologne, Frankfurt, Munich and Brussels.

Lufthansa declined to confirm or deny the report.

The EC is currently investigating the proposed deal and has said it could make a quick decision if Lufthansa makes acceptable concessions on certain routes.

A questionnaire sent to Lufthansa's rival airlines as part of a third EC "market test" asked whether the latest offer was enough to protect competition in the European market.

Three daily flights to Stuttgart and three to Cologne could be freed up as part of the deal.

Five flights a day to Frankfurt and up to four flights on Munich and Brussels routes may also be given up by Lufthansa.

The document said that the slots would be offered free to other airlines and any that take up the slots may participate in Lufthansa's frequent flyer programme.

Lufthansa is understood to have offered priority to airlines that are not fellow Star Alliance members.

Austrian budget carrier Niki, Slovakia's SkyEurope and Slovenia's Adria Airways have been singled out as being interested in the routes.

Earlier this week Lufthansa asked the Austrian takeover authority to extend its July 31 deadline to August 31.

Under the current terms of the agreement, Lufthansa can walk away from the deal by July 31 at the latest.

But Lufthansa confirmed it is seeking more time to secure approval from the European Commission (EC) by making "adapted" concessions on routes in and out of Vienna.

A Lufthansa spokesperson told ABTN the airline was confident of reaching an agreement with the EC.

Lufthansa said a new deadline had been requested because of "indications" the Commission would approve the deal before the end of August.

A spokesperson for the Austrian Takeover Commission said no decision to extend the July deadline had been taken.

Austrian regulators could decide to extend the deadline by days or weeks rather than the full month.

On Tuesday (July 28) the EC said it had received a new offer from Lufthansa after intensive discussions over the weekend.

Lufthansa's previous package of concessions, submitted earlier this month, was quickly rejected by the EC which said further concessions had to be made.

If Lufthansa's latest offer is rejected, a decision on the EC's probe into the deal may not be made until November 6.

Lufthansa has indicated that it could walk away from the deal if concessions made the takeover "uneconomical".

Austrian Airlines has warned that it would need a €1bn cash boost should the deal with Lufthansa fall through, twice the €500m grant promised by the Austrian Government.

Austrian Airlines recently announced it was cutting around 1,000 jobs by mid-2010 to help make savings of €200m by 2012.

Austrian admitted that cuts had been made this year in the hope that the EC would approve its merger with Lufthansa.

The EC this month began a second investigation into the takeover, citing concerns that competition could be reduced on routes between Vienna other European cities.

Under the proposed deal Lufthansa agreed to pay the Austrian government €366,268 for its 41.6% stake in its national airline.

The second part of the agreement was that the Austrian state received a "debtor warrant" from Lufthansa which might lead to additional payments.

The last element was that the Austrian government paid Lufthansa €500m for a "capital increase" in Austrian Airlines.

Lufthansa's share offer for Austrian was approved by 85% of the shareholders, above the 75% threshold needed under the takeover terms.

The Commission said it was still considering "state support for Austrian Airlines in the framework of a separate investigation under EC Treaty state aid rules."

www.austrian.com   www.lufthansa.com   http://ec.europa.eu/index_en.htm