Austrian looking for a long term partner. The boy next door?


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Austrian Airlines’ government shareholding of perhaps half of its 42.5% is on the market. It seems that the longer the “for sale” sign is up, so the more interest it is attracting around the world. Lufthansa has to be the favoured suitor, but is not prepared to force itself forward unless invited. Airlines from all three major alliances are now romantically linked with Austrian. Meanwhile, consultants will report on their recommended sales methodology next Monday.

And relations are souring with former suitor, Saudi/Austrian billionaire, Mohamed al-Jaber. Austrian allege he left them at the altar earlier this year, after promising a 20% lifesaving investment and are suing him, to be met with a counter-claim and a criminal complaint against Austrian's CEO, Alfred Oetsch.

Al-Jaber was to have paid around EUR150million for his one fifth stake - with no immediate controlling role - reflecting Austrian's share price at around EUR7.50. Hence the interest in suing him for completion, now that the market price has plummeted. But what the small (and contracting) flag carrier really needs is a strategic partner, an airline. In the past two weeks it has announced a range of planned short and long haul cutbacks, notably its US routes, which make it ripe for partnership, allowing it to complement its shrinking route network.

Austrian Airlines (ANA.F) share price: 01-Aug-07 to 18-Jul-08

Source: Centre for Asia Pacific Aviation & Yahoo Financial

As a hub carrier, connecting into the vibrant eastern Europe markets, any loss of spokes has an exaggerated impact on its overall operations and cash flow.

Some major operators are lining up to be considered. Apart from neighbouring Lufthansa, rumored or informally linked airlines include such widely dispersed carriers as Aeroflot (SkyTeam), Air China (Star), Air France (SkyTeam), Royal Jordanian (oneworld) and, as always whenever the slightest hint of a sale is heard, Emirates. The Dubai carrier is however more preoccupied with organic expansion than with acquisition and Air France has reportedly said it is not interested, even if it should be.

Austrian is a Star Alliance partner (and subject to painful withdrawal penalties); it is also a beneficiary of Austria's membership of the European Union, so it most naturally fits with a European Star member. But that is altogether too simple. Moreover, defining that sort of purchaser profile is unlikely to achieve the necessary "competitive tension" in any bidding process to give the consultants and financial advisers the sort of commissions to which they have become accustomed.

Aside from the Austrian government's holding company OeIAG's 42.5% share, 46% of Austrian is publicly listed, with the remainder mostly with a local syndicate. The sale of a minority share should not be enough to disable the Austrian flag carrier from maintaining its European-ness, although limiting the sale to a mere 20% holding may not generate sufficient strategic value for a partner - which in turn reduces the sale price. And Austrian needs cash. However, if a generous commercial partnership deal could be forged, with perhaps some assurances about later increased holdings, the purchasing airline would obtain greater value there.

Despite the poor current outlook, Austrian should still attract a premium as a result of its geographic attraction. And, after all the dust dies down, Austrian will be wisest to swallow its nationalism and hope that Lufthansa will follow the bidding all the way up.

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