The European Commission has opened an investigation to assess Lufthansa's planned acquisition of ITA Airways due to concerns it would reduce competition.
After drawn-out negotiations, Lufthansa reached an agreement with the Italian government last May to acquire an initial 41 per cent stake in the airline.
The Commission assesses mergers and acquisitions involving companies with a turnover above certain thresholds to prevent concentrations that would “significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it.”
Under the EU Merger Regulation the Commission said it has “preliminary concerns that the transaction may reduce competition in the market for passenger air transport services on several short-haul and long-haul routes in and out of Italy.”
Lufthansa and ITA are strong and close competitors and operate an extensive network of domestic routes, short-haul routes within the EEA, and long-haul routes between the EEA and the rest of the world.
The Commission believes the proposed transaction may reduce competition on short-haul routes connecting Italy with countries in Central Europe where there is limited competition, primarily from low-cost carriers, such as Ryanair, which often operates from more remote airports.
It is also looking at routes where one of the parties is already offering services and the other is expected to enter soon, and where one or both of the parties has a one-stop connection, and where non-stop connections are limited or only offered by the other party.
The investigation will also assess how the transaction could affect ITA's dominant position at Milan-Linate airport, which could make it harder for rivals to launch passenger air services to and from the airport.
Margrethe Vestager, executive vice-president in charge of competition policy, said: "By opening the in-depth investigation, we want to further assess the transaction and ensure that the acquisition of ITA does not reduce competition in short-haul and long-haul traffic and that it will not lead to higher prices, less capacity or lower quality for passenger air transport services in and out of Italy."
As Lufthansa already has a joint venture with United Airlines and Air Canada the Commission will also have to assess whether the activities of ITA, Lufthansa and its two partners should be treated as those of a single entity after the merger.
The proposed transaction could also reduce competition on long-haul routes between Italy and the US, Canada, Japan and India, because of the close competition between ITA and Lufthansa or Lufthansa's joint venture partners.
According to a statement from the Commission, Lufthansa submitted commitments to address some of its concerns but they were deemed "insufficient, in terms of both scope and effectiveness, to clearly dismiss the Commission's preliminary concerns."
The European Commission has until June 6 to make a decision.