Lufthansa plans to acquire SAS

Lufthansa is reported to be in early-stage talks with Scandinavian airline SAS. The move is being seen as an endeavour by Lufthansa to consolidate its position as Europe's second-biggest airline.

Lufthansa has fared much better than its rivals against the cost and demand adversities that the global airline industry is going through currently. Lufthansa has been vocal about the fact that it views the industry crisis as an opportunity to pick up bargains and consolidate its position further. 

Speculation about the talks has seen the SAS stock suspended on the Scandinavian stock exchanges, and the group has declared that it was ''conducting talks about a possible structural solution'' to cost problems that has led to staff being laid off and aircrafts mothballed. SAS shares have fallen two-thirds over the past year, and investor sentiment is waning with the group postponing the listing of its Spanish unit Spanair, just weeks before the fatal Spanair crash at Madrid airport.

SAS shares rose by just under 10 per cent, valuing the group at around $1.3 billion when news of the talks broke. The opportunity to acquire SAS offers the Lufthansa group a chance to expand its growing network of operations. 

Industry sources point out that the downturn could well work in Lufthansa's favour in the SAS deal, if it were to materialise. They say that normal circumstances would have witnessed political turbulence for the deal, as the Swedish government owns 21.4 per cent of SAS, Norway authorities claim 14.3 per cent, and the Danish government has a 14.3 per cent stake. However, in these difficult times, the story could play out very differently.

Analysts predict that though SAS shares are relatively cost effective, the political headaches of dealing with three governments to a consensus would be difficult. A takeover, if it were to happen, will have to blend economic sense with social policy. They cite examples of earlier takeover attempts of Swedish companies where the government has a stake as proof. For example, France Telecom's proposed takeover of TeliaSonera staggered on account of Stockholm's reluctance. Norway's Telenor and Sweden's Telia proposed alliance collapsed amid accusations in both countries.

Lufthansa, Air France-KLM and British Airways have long been seen as the trio around which the European aviation airline market will consolidate, with fuel costs giving momentum to the consolidation process. 

All three are said to be engaged in talks for a minority stake in the beleaguered Italian flag carrier, Alitalia. British Airways is also reported to be in talks with Spanish rival Iberia; Lufthansa's talks with Brussels Airlines are at an advanced stage, and Lufthansa and Air France – KLM are keen on picking up the government's stake in Austrian Airlines.

Lufthansa airline's discussions with SAS does push it up somewhat on the European league table, as it sets about to acquire bargains counting on its robust business model and strong balance sheet. But the game is yet to be played out.