VZCZCXRO5602
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHVI #0585 1351508
ZNR UUUUU ZZH
R 151508Z MAY 09
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC 2576
INFO RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC
RUCNMEM/EU MEMBER STATES

UNCLAS VIENNA 000585 
 
SIPDIS 
 
STATE FOR EB/TRA, EUR/CE AND EUR/AGS 
PARIS FOR FAA 
BRUSSELS FOR FAA (PFELDMAN) 
BRUSSELS FOR TSA (PJRODGERS) 
PARIS FOR FAA 
BERLIN FOR TSA (JRANDOL) 
 
E.O. 12958: N/A 
TAGS: EAIR ECON PGOV AU
SUBJECT: Lufthansa Buyout of Austrian Airlines Clears Shareholder 
Hurdle But Still Needs Commission Approval 
 
REF:  (A) VIENNA 0225; (B) 08 VIENNA 1773 and previous 
 
¶1. SUMMARY.  With Lufthansa in control of 85% of Austrian Airlines 
(AUA) shares, the merger with Lufthansa is on track to meet a July 
31 deadline.  The buyout remains contingent on European Commission 
approval of the deal and a EUR 500 million GoA subsidy -- and AUA 
must remain solvent until the merger is final.  END SUMMARY. 
 
¶2. May 11 was the deadline for free-float shareholders to accept 
Lufthansa's public takeover offer of EUR 4.49 per share.  Lufthansa 
had set 75% as a floor for the sale;  by preliminary calculations, 
enough private shareholders accepted the offer that Lufthansa can 
now control 85% of AUA shares.  That figure includes the GOA holding 
company OIAG's 41.56% stake of (NOTE: Lufthansa will pay OIAG a 
symbolic price of EUR .01/share) and the 7.05% stake held by a 
consortium of Austrian institutions.  Crossing the 75% threshold is 
a significant milestone towards closing the deal this summer 
(Lufthansa's deadline is July 31). 
 
 
¶3. Remaining obstacles to the AUA-Lufthansa merger: 
-- the European Commission must approve an implicit GoA subsidy of 
EUR 500 million (since this is state aid), 
-- EU competition authorities must approve the merger on conditions 
acceptable to Lufthansa, and 
-- AUA must remain solvent through July 31. 
 
¶4. The Commission has until June 17 to examine the competitive 
conditions of the sale.  Lufthansa rivals including Air France-KLM 
have objected to the takeover terms and filed a complaint over the 
GoA commitment to assume 500 million euros of AUA debt as part of 
the deal. 
 
¶5. AUA's solvency is also an issue and a cause for urgency, meaning 
AUA and Lufthansa may try to complete the takeover before July 31. 
On March 13, AUA management posted a record loss results for 2008 of 
EUR 429.5 million.  On May 5, AUA disclosed another net loss of EUR 
88.1 million for the first quarter of 2009, which means that AUA's 
capital base is drying up fast.  AUA interim management has already 
introduced a crisis packet (goal: save EUR 225 million in costs this 
year) to compensate for falling traffic and revenues.  Measures 
include production cutbacks, short-time working, temporary 
deferments in compensation and suspension of pension fund 
contributions, and agreement with Vienna International Airport (VIE) 
on savings such as lower security charges for transfer passengers at 
VIE.  Despite AUA's interim measures, time may be running out for 
the carrier to close its deal with Lufthansa. 
 
ORDWAY