Europe is a complicated space in terms of aviation. The continent sees coexist large low-cost carriers and some of the largest legacy airline groups. Maintaining profitability is not easy and implies maintaining a perfect product and value balance. In this landscape Lufthansa is strengthening its ties with one of the continent's few hybrid airlines, airBaltic. Let's see what this is all about.
Stronger Ties Between Lufthansa and airBaltic – LH Taking a 10% Share
Lufthansa continues working on consolidating its position as a dominant force in the European aviation market with an investment in yet another carrier. Just a couple of weeks ago the German flag carrier wrapped up the massively important and strategic acquisition of ITA Airways. Now, it is announcing an initial investment in airBaltic.
Lufthansa has reached an agreement with the Baltic carrier to take control of a 10% stake under the form of convertible shares. The airline will have the opportunity to transform those into ordinary shares upon an IPO by airBaltic anytime in the future.
It might not sound as a big deal, but it is. There is a huge consolidation game going on at the moment in European aviation. ITA Airways going under Lufthansa's wing and SAS snuggling up to Air France-KLM are the most apparent proof of the ongoing process. There are still a few carriers out there not directly affiliated with any of the major groups, but their numbers are rapidly decreasing. airBaltic was one of those carriers. However, this initial investment by LH might be the beginning of a much larger possible agreement between the carriers.
Investing in airBaltic grants Lufthansa a voice in the nordic airline's supervisory board, and therefore an initial insight into operations and steering interests in its direction. The transaction should be concluded in 2025's Q2 and of course is undergoing antitrust review. The agreement didn't just come out of the blue. Lufthansa and airBaltic strengthened their ties with this convertible shares acquisition following an initial wet-lease agreement.
The Origins of The Agreement – The airBaltic Lufthansa Wet-Lease Agreement
Lufthansa first approached airBaltic with the need to solve a very specific issue. The German carrier had to fill in some gaps in its operations and therefore sought an agreement to lease some aircraft from Europe's largest A220 operator.
Just recently, in the second half of 2024, the two carriers decided to extend their wet-lease agreement for another 3 years after the 2025 summer season. That wet-lease agreement extension piggybacks on a long standing agreement between the airlines dating as far back as 2019.
Currently the Lufthansa Group is wet-leasing from airBaltic up to 21 Airbus A220-300s in the summer months, with some flexibility on the numbers, and 5 during the quieter winter months. This has greatly helped Lufthansa fill some voids in its fleet and operations while also helping airBaltic build up a parallel stream of revenue. Keep in mind wet-leases are not cheap.
The wet-lease agreement was therefore the bedrock of this new investment by the German lead European aviation group.
Which Leaves Very Few Independent Airlines in Europe
Which brings us to the closing thought of this article, which are Europe's airlines which are still independent and not directly affiliated to the continent's major aviation groups?
Less than a handful of well structured large carriers fall into this category, which all the major airlines keeping a close eye on them:
- TAP Air Portugal
- Air Europa
- Finnair
Finnair, although independent, has very close ties with the IAG Group with which it also shares its frequent flyer loyalty currency, Avios. Therefore two are the really independent carriers that are still up for grabs. Between 2023 and 2024 the IAG Group tried to take control of Air Europa only for the deal to fall apart following antitrust authority concerns.
TAP Air Portugal on the other hand has been linked to Lufthansa but those links no longer make sense with the German carrier taking control of ITA Airways. It'll be interesting to see how these last pieces of the European aviation market consolidation puzzle fall into place.
