Lufthansa and major US LCC, JetBlue, today announced that Lufthansa had acquired a 19% equity holding in the US self-described “point-to-point air carrier”, for USD300 million. The airlines described this as “the first significant investment by a European air carrier” in an American LCC/non-legacy airline.
The European merger virus, now raging among the major carriers there, yesterday leapt across the Atlantic into the US domestic market. It could be the sign of more to come, both in the US and elsewhere.
JetBlue made an off-market private placement of approximately 42 million newly issued common shares to Lufthansa, or 19% of JetBlue's equity, at a price of USD7.27 per share, a 16% premium to yesterday's closing price of USD6.25. The timing was good for JetBlue, whose share price performance this year closely resembles a ski slope.
JetBlue share performance 2007
Source: Centre for Asia Pacific Aviation & Yahoo Financial
Why is this important for aviation in this region? Because, within a very short time, that same infection will be transmitted into Asia. Growing out of very strong, long-protected bases in their home markets and expanding in the liberalised “domestic” European single skies, major carriers, Air France and Lufthansa, are leading the way, just as they lead two of the major global alliances, Skyteam and Star Alliance.
This week, three more airlines join the Star fold, Air China, Shanghai Airlines and Air India, to add to Air New Zealand, All Nippon Airways, Asiana, Singapore Airlines and Thai Airways. Lufthansa is close to all of these airlines and the web of Star codeshare and other commercial agreements just serves to grow the relationships. The airline is, for example, the runaway favourite to buy a cornerstone share in Air India, once the Indian Government gets to the stage of an IPO of the Indian flag carrier.
And, at home in Europe, Lufthansa has acquired Swiss and effectively owns major LCC Germanwings – which is reportedly in the process of buying another major German LCC/travel airline, TUIfly. Lufthansa CEO, Wolfgang Meyrhuber yesterday also confirmed that the German carrier was “still in the race” to buy oneworld carrier, Iberia (after wisely – although perhaps temporarily - bowing out of the Alitalia bid process).
By investing in both legacy airlines and LCCs, Lufthansa is preparing well for future. The next downturn, perhaps imminent, will see the European majors, well cashed-up and eager to expand, make more forays into the airline investor market. With a financially weak US industry and fragmented airline structures in this region, European airline expansion will become as predictable as shooting fish in a barrel.</