Austrian Air-Lufthansa Deal Looking Up

UNCLAS VIENNA 000949 SIPDIS STATE FOR EB/TRA AND EUR/CE PARIS FOR FAA BRUSSELS FOR FAA BERLIN FOR TSA (RANDOL) E.O. 12958: N/A TAGS: EAIR ECON PGOV AU SUBJECT: Austrian Air-Lufthansa Deal Looking Up REF: (A) VIENNA 0910; (B) VIENNA 0585; (C) VIENNA 0225 ¶1. Lufthansa's amended July 28 offer for Austrian Airlines (AUA) has raised hopes of a successful deal. Although the Commission has refused to comment specifically on the new offer, Austrian press reports indicate that Lufthansa has agreed to reduce the number of flights to Frankfurt in return for keeping its Vienna-Munich flight options and that AUA will renounce its 22.5 percent share in the Ukraine International Airlines. Lufthansa was able to make further concessions because it had secured additional cost savings from Austrian's unions as reported in ref A. Lufthansa has requested the Austrian takeover commission to extend the initial July 31 deadline to August 31 to allow the Commission time to test market the new offer. ¶2. Most Austrian stakeholders in the negotiations, including Finance Minister Josef Proell, the Government Holding Company OIAG, and the two AUA chairmen of the board (Peter Malanik and Andreas Bierwirth) are counting on a successful closure of the deal after the latest developments. They said that "extensive negotiations" had taken place over the last weekend. Proell said he hoped this move would "close the circle" as the Austrian government agreed to privatize AUA exactly one year ago. ¶3. During August, EU Commissioner Kroess' office will draft a report addressing the antitrust concerns of Lufthansa's competitors (especially the critical FlyNiki opposition),and send the report to the EU "Advisory Committee" for adoption. Simultaneously, Transportation Commissioner Tajani will report on the legality of the Austria's 500 million euro state aid to AUA. The EU Commission is expected to make its final decision in the last week of August or beginning of September. HOH