European Business Weekly
1 April 2005
Frankfurt -- In a stunning development within the air transport industry, Lufthansa German Airlines announced Thursday morning that it will assume a ‘significant and unique’ financial stake in the beleaguered American air carrier United Airlines. During a brief presentation to announce the go-ahead of Lufthansa’s acquisition of Switzerland’s national carrier Swiss, Lufthansa Managing Director Wolfgang Mayruhber took a moment to announce his plans to also pursue a strategy of significant monetary investment in United.
Standing on a rostrum, wreathed in the logos of Lufthansa and the Star Alliance, in the Lufthansa headquarters in Frankfurt, Mayruhber sketched only the vaguest of details in a move that is sure to roil the already unsettled waters of the international air transport system and in turn, unhinge many a competitor’s plans. During the mere ten-minute presentation, no specific numbers were given as to the amount of monies that will be directed toward United. Revealing solely that the investment would be ‘broad, long-term, and novel,’ Mayruhber stated that his plan was for Lufthansa and United to move beyond the working phase of the code-share mechanism of the Star Alliance and into a more fruitful and synergistic business partnership.
Lufthansa’s aggressive posture on the world’s airline stage is further evidenced by the German carrier’s recent effort to acquire the troubled airline of the cantons – Swiss. That Lufthansa would act in such a short span of time with an acquisition spree has drawn mixed commentary from those financial houses that follow the industry. Juergen Klinsmann, an analyst at Deutsche Bank sees the move as a purely defensive and as a long overdue action that will serve as a catalyst for change in the world’s aviation sector. Bertram Lavior of BNP Paribas in London however, views the response as wrought with danger. “Lufthansa must decide whether to be fish or fowl,†Lavior stated. “To be a consolidator in the European market is one thing, but to try to rescue one of the American carriers is unconscionable. There are times when it is good to be a fish and times when it is good to be a fowl, but now is not a good time to be both.â€
Nearly all observers though, are in agreement as to the numerous regulatory questions that are extant surrounding such an investment. Ownership laws in the United States are of particular rigour in dealing with ‘foreign’ ownership in the American air industry and changing such laws would prove tortuous at best. Some commentators concede however, that Lufthansa is in the right to test such provisions at this time. Assailed by losses reaching into the billions of U.S. dollars, airline managers have recently used carefully guarded language in describing the need for a ‘re-arrangement’ of the United States air industry. With the United States government recognizing the severity of the situation, regulators could perhaps be persuaded that a white knight from Germany would provide the stabilizing restructuring influence so long sought in the market. Under the guise of the ongoing ‘Open Skies’ negotiations between the United States and Great Britain over air traffic rights, many believe that these talks could be radically expanded into an agreement that would allow a serious revamping of investment strictures. Lufthansa, sources say, has actively sought ‘work-around’ solutions with negotiators. These sources point to an internal Lufthansa working group code-named “Group Otto†after Otto von Bismarck, the man credited with founding the German Empire in the late 1800s. This team, in conjunction with officials from United, has been weighing options with European and American regulatory officials. Again stressing the novelty of the proposal, Mayruhber emphasized that “all possibilities have been considered in this matter and we are confident that we can move forward in a constructive manner.†A City banker, speaking on the condition of anonymity, recognized the tight-wire act that Lufthansa is acting out. “The acquisition of Swiss is the easy part, it is the pouring of money into United that is trickier. United is an indispensable and major part of the Star Alliance that has the potential for great rewards – rewards though that are coupled with great risk. The pitfall is that this could devolve into a make-work program for the regulator, members of the bar, and the lay-abouts in Brussels who would ostensibly have to also approve such a momentous marriage.â€
Not surprising was the vehement reaction of United and Lufthansa’s rivals. Sir Richard Branson the leader of Virgin Atlantic, long known for his oleaginous manner and delegation of serious work to able lieutenants, was nearly apoplectic in his response. “I have long tilled the fertile ground of regulatory approval for outside investment into U.S. carriers and I will not be pipped at the post by the Frankfurters. I refuse to believe that anyone else can have a nose in the trough of such endeavors without granting me a place.†Jean-Cyril Spinetta, chief of Air France retorted, “Ah, les Allmagnes se mettent encore une fois en marche. Mais non. Non! C’est ne pas possible!†(The Germans are marching once again – No! No! It is not possible!) Spinetta was particularly taken aback by the “Plan Otto†naming of the working group. He sees this unveiled reference to a man who by storm acquired portions of the Alsace/Lorraine region as distasteful at best.
Gerard Aprey, leader of United’s main competitor American Airlines, was wry in his assessment. “We have always been extraordinarily supportive of United Airlines. We love and welcome competition – we can envision the marketplace having no other appearance than that with United on the field with us. Although we are distraught at the prospect of United having to go ‘a beggaring’ to foreign ports, I must restate American’s firm belief that it eagerly greets the competition and is supportive of any action that will benefit the consumer.â€
Others were not so diplomatic in their conjecture. Michael O’Leary, chief of Ryanair and always known to be foul of tongue, opined, “Lufthansa and United call this a defensive measure? One can only expect that a radio transmission tower has been felled and the Germans are only shooting because they have been fired upon.†Mr. O’Leary’s comments of course are in reference to the infamous German claims that Polish forces, while attacking a radio transmitter in late August 1939, killed German soldiers – thus providing the Germans adequate reason to attack the whole of Poland. O’Leary further speculates on what the name of such a new carrier could be. “One can only think of the German American Bund of the 1930s. Is Lufthansa to drop the mask of respectability in this matter and reveal the wolf that is in sheep’s clothing?†“What,†O’Leary nearly sneeringly postulated, “is this newly funded entity to be called? Lufted? Unihansa? I will admit that my country did not sever diplomatic relations with Germany until March of 1945, but this time the rules are different and this type of naked aggression cannot stand.â€
Lufthansa’s Mayruhber and United’s CEO Glenn Tilton however, may very well be the ones who have felled not a radio tower, but rather brought forth a brilliant marketing strategy. The first priority according to the conference, will be to change the corporate logos to the famous Pickel-Haube, or pointed spikes, that adorned the Prussian military helmets until the end of the First World War. As a United spokesman so aptly picked up the theme from Mayruhber, “This will show our competitors that we mean business – the days of playing the softy are over.†Further plans involve christening certain aircraft with historical names such as ‘Bismarck’ and ‘Ernst Juenger.’ Lufthansa and United marketing representatives have even toyed with the idea of a 747-400 baptized ‘Blitzkrieg’ to be used on a rotational basis to major world cities to further show the resolve of the new campaign. Whether this bellicose posturing will scare the others remains to be seen, but it certainly is a change from the famous Blue Goose and the slightly recumbent U that have heretofore adorned these airlines aircraft. “At this point†muses a Star Alliance spokesman, “anything is worth a try.â€
1 April 2005
Frankfurt -- In a stunning development within the air transport industry, Lufthansa German Airlines announced Thursday morning that it will assume a ‘significant and unique’ financial stake in the beleaguered American air carrier United Airlines. During a brief presentation to announce the go-ahead of Lufthansa’s acquisition of Switzerland’s national carrier Swiss, Lufthansa Managing Director Wolfgang Mayruhber took a moment to announce his plans to also pursue a strategy of significant monetary investment in United.
Standing on a rostrum, wreathed in the logos of Lufthansa and the Star Alliance, in the Lufthansa headquarters in Frankfurt, Mayruhber sketched only the vaguest of details in a move that is sure to roil the already unsettled waters of the international air transport system and in turn, unhinge many a competitor’s plans. During the mere ten-minute presentation, no specific numbers were given as to the amount of monies that will be directed toward United. Revealing solely that the investment would be ‘broad, long-term, and novel,’ Mayruhber stated that his plan was for Lufthansa and United to move beyond the working phase of the code-share mechanism of the Star Alliance and into a more fruitful and synergistic business partnership.
Lufthansa’s aggressive posture on the world’s airline stage is further evidenced by the German carrier’s recent effort to acquire the troubled airline of the cantons – Swiss. That Lufthansa would act in such a short span of time with an acquisition spree has drawn mixed commentary from those financial houses that follow the industry. Juergen Klinsmann, an analyst at Deutsche Bank sees the move as a purely defensive and as a long overdue action that will serve as a catalyst for change in the world’s aviation sector. Bertram Lavior of BNP Paribas in London however, views the response as wrought with danger. “Lufthansa must decide whether to be fish or fowl,†Lavior stated. “To be a consolidator in the European market is one thing, but to try to rescue one of the American carriers is unconscionable. There are times when it is good to be a fish and times when it is good to be a fowl, but now is not a good time to be both.â€
Nearly all observers though, are in agreement as to the numerous regulatory questions that are extant surrounding such an investment. Ownership laws in the United States are of particular rigour in dealing with ‘foreign’ ownership in the American air industry and changing such laws would prove tortuous at best. Some commentators concede however, that Lufthansa is in the right to test such provisions at this time. Assailed by losses reaching into the billions of U.S. dollars, airline managers have recently used carefully guarded language in describing the need for a ‘re-arrangement’ of the United States air industry. With the United States government recognizing the severity of the situation, regulators could perhaps be persuaded that a white knight from Germany would provide the stabilizing restructuring influence so long sought in the market. Under the guise of the ongoing ‘Open Skies’ negotiations between the United States and Great Britain over air traffic rights, many believe that these talks could be radically expanded into an agreement that would allow a serious revamping of investment strictures. Lufthansa, sources say, has actively sought ‘work-around’ solutions with negotiators. These sources point to an internal Lufthansa working group code-named “Group Otto†after Otto von Bismarck, the man credited with founding the German Empire in the late 1800s. This team, in conjunction with officials from United, has been weighing options with European and American regulatory officials. Again stressing the novelty of the proposal, Mayruhber emphasized that “all possibilities have been considered in this matter and we are confident that we can move forward in a constructive manner.†A City banker, speaking on the condition of anonymity, recognized the tight-wire act that Lufthansa is acting out. “The acquisition of Swiss is the easy part, it is the pouring of money into United that is trickier. United is an indispensable and major part of the Star Alliance that has the potential for great rewards – rewards though that are coupled with great risk. The pitfall is that this could devolve into a make-work program for the regulator, members of the bar, and the lay-abouts in Brussels who would ostensibly have to also approve such a momentous marriage.â€
Not surprising was the vehement reaction of United and Lufthansa’s rivals. Sir Richard Branson the leader of Virgin Atlantic, long known for his oleaginous manner and delegation of serious work to able lieutenants, was nearly apoplectic in his response. “I have long tilled the fertile ground of regulatory approval for outside investment into U.S. carriers and I will not be pipped at the post by the Frankfurters. I refuse to believe that anyone else can have a nose in the trough of such endeavors without granting me a place.†Jean-Cyril Spinetta, chief of Air France retorted, “Ah, les Allmagnes se mettent encore une fois en marche. Mais non. Non! C’est ne pas possible!†(The Germans are marching once again – No! No! It is not possible!) Spinetta was particularly taken aback by the “Plan Otto†naming of the working group. He sees this unveiled reference to a man who by storm acquired portions of the Alsace/Lorraine region as distasteful at best.
Gerard Aprey, leader of United’s main competitor American Airlines, was wry in his assessment. “We have always been extraordinarily supportive of United Airlines. We love and welcome competition – we can envision the marketplace having no other appearance than that with United on the field with us. Although we are distraught at the prospect of United having to go ‘a beggaring’ to foreign ports, I must restate American’s firm belief that it eagerly greets the competition and is supportive of any action that will benefit the consumer.â€
Others were not so diplomatic in their conjecture. Michael O’Leary, chief of Ryanair and always known to be foul of tongue, opined, “Lufthansa and United call this a defensive measure? One can only expect that a radio transmission tower has been felled and the Germans are only shooting because they have been fired upon.†Mr. O’Leary’s comments of course are in reference to the infamous German claims that Polish forces, while attacking a radio transmitter in late August 1939, killed German soldiers – thus providing the Germans adequate reason to attack the whole of Poland. O’Leary further speculates on what the name of such a new carrier could be. “One can only think of the German American Bund of the 1930s. Is Lufthansa to drop the mask of respectability in this matter and reveal the wolf that is in sheep’s clothing?†“What,†O’Leary nearly sneeringly postulated, “is this newly funded entity to be called? Lufted? Unihansa? I will admit that my country did not sever diplomatic relations with Germany until March of 1945, but this time the rules are different and this type of naked aggression cannot stand.â€
Lufthansa’s Mayruhber and United’s CEO Glenn Tilton however, may very well be the ones who have felled not a radio tower, but rather brought forth a brilliant marketing strategy. The first priority according to the conference, will be to change the corporate logos to the famous Pickel-Haube, or pointed spikes, that adorned the Prussian military helmets until the end of the First World War. As a United spokesman so aptly picked up the theme from Mayruhber, “This will show our competitors that we mean business – the days of playing the softy are over.†Further plans involve christening certain aircraft with historical names such as ‘Bismarck’ and ‘Ernst Juenger.’ Lufthansa and United marketing representatives have even toyed with the idea of a 747-400 baptized ‘Blitzkrieg’ to be used on a rotational basis to major world cities to further show the resolve of the new campaign. Whether this bellicose posturing will scare the others remains to be seen, but it certainly is a change from the famous Blue Goose and the slightly recumbent U that have heretofore adorned these airlines aircraft. “At this point†muses a Star Alliance spokesman, “anything is worth a try.â€
