Global aviation in Europe is very much controlled by the “big three” European airline groups — Air France-KLM, IAG, and Lufthansa Group. These airline groups strategically try to buy up independent airlines, largely in order to prevent competitors from doing the same.
Recently, we’ve seen Air France-KLM acquire a stake in Scandinavian Airlines, and we’ve seen Lufthansa Group acquire a stake in ITA Airways. Well, Lufthansa Group has just announced plans to purchase a stake in yet another airline, though this is a minority investment.
In this post:
Lufthansa Group buys minority stake in airBaltic
Lufthansa Group has announced plans to invest in airBaltic. The two companies have signed an agreement, whereby Lufthansa Group receives a convertible share representing a 10% stake in the airline, which will be issued at a subscription price of €14 million. Additionally, Lufthansa Group will receive a seat on the airBaltic board.
The closing of the transaction is planned for the second quarter of 2025. The convertible shares will be changed into ordinary shares, upon a potential IPO of airBaltic. The size of the stake will be determined by market pricing of the potential IPO, with Lufthansa Group’s share amounting to no less than 5% of airBaltic.
For those not familiar with airBaltic, the airline operates a fleet consisting exclusively of Airbus A220-300s, and the airline hopes to grow this fleet to 100 aircraft by 2030.
Since Lufthansa Group is only acquiring a small stake in airBaltic, regulatory approval shouldn’t be too complicated, unlike a situation where airline groups look to acquire a majority stake in another airline.
airBaltic is owned by the government of Latvia, though the plan has been for the airline go to public at some point this year. Even if the airline goes public, the government still plans to retain a 25% stake in the airline. The airline turned a mild profit in 2023, despite all the challenges it faced. Given Latvia’s geography near Russia, the airline has had to make major changes to its route map and business plan.
What Lufthansa Group gains from airBaltic investment
airBaltic isn’t currently part of any major global airline alliance, but instead forges strategic partnerships where there’s a mutually beneficial arrangement. airBaltic and Lufthansa Group have long had a wet lease partnership, whereby airBaltic leases its jets to Lufthansa Group carriers during peak demand periods.
The companies actually recently extended their contract an additional three years, beyond the summer of 2025. The partnership enables the flexibility to lease up to 21 aircraft in summer, and up to five aircraft in winter, so that Lufthansa Group can deploy capacity as needed.
But what’s the motivation beyond of the investment beyond that? I suspect there are a few factors at play here.
First of all, when it comes to consolidation in Europe, one factor is buying smaller airlines to avoid competitors from instead buying them and further consolidating power. It sounds silly, but it has been a major consideration in airline consolidation over the years. Admittedly Lufthansa Group is only buying a small stake at first, but it’s a start.
Second of all, strategically there’s something to be said for having an airline partner in Northern Europe, given that oneworld has Finnair, while Air France-KLM now owns a stake in Scandinavian Airlines (SAS). That being said, I think the strategic implications would be fairly limited, given that airBaltic doesn’t operate long haul routes. Maybe airBaltic could add a few more routes to Lufthansa Group hubs, but I don’t think there’s that much to be gained there.
Lastly, I think what probably makes this investment most attractive to Lufthansa Group would be essentially having an in-house wet lease operator. Lufthansa Group is already leasing planes from airBaltic to cover a shortage of aircraft otherwise.
With this, Lufthansa Group is able to partner more closely with fleet planning and strategy surrounding this. Heck, Lufthansa Group CEO Carsten Spohr is skilled at finding new ways to set up subsidiaries and reduce labor costs, if nothing else, and this fits perfectly into that.
The press release about the investment talks about how this will “strengthen airBaltic’s role as a strategic partner of Lufthansa Group,” and how “expanding this commercial cooperation allows Lufthansa Group to improve the quality of its network and to add additional markets.”
Bottom line
Lufthansa Group is purchasing a minority stake in airBaltic. The airline exclusively flies Airbus A220s and is owned by the government of Latvia, and currently has quite the wet lease agreement with Lufthansa Group.
Admittedly such a small stake doesn’t give Lufthansa Group that much power over airBaltic, though it might help with more long term collaboration between the two companies, from wet lease agreements, to more commercial cooperation.
I don’t think this will be some sort of a game changer for European aviation, but clearly Lufthansa Group recognizes it has some opportunities to grow in Northern Europe.
What do you make of Lufthansa investing in airBaltic?
Air Baltic has been wet leasing planes to Swiss for 2 years now. FA salary is about 1600 eur per month or a third of a Swiss based FA.
It is official... Lufthansa will be the first airline to take delivery of the 777X.
Great, let's pro-actively give them a 6-star Skytrax rating!
@AJO
They cannot sort out Allegris issues. The same Allegris that got them a 5-star rating 7 years ago. That was a big joke and since that day I found SkyTrax to be a much bigger joke
Here’s my small grammar point, which you can feel free to ignore. Many brands have a name that begins with a lower case letter, like air Baltic and iPhone. But if that word begins a sentence, the first letter should be capitalised no matter. So “Lufthansa is buying airBaltic” is fine but it would be “AirBaltic is being bought by Lufthansa” if the sentence begins with that airline name. Lower case letters at the start...
Here’s my small grammar point, which you can feel free to ignore. Many brands have a name that begins with a lower case letter, like air Baltic and iPhone. But if that word begins a sentence, the first letter should be capitalised no matter. So “Lufthansa is buying airBaltic” is fine but it would be “AirBaltic is being bought by Lufthansa” if the sentence begins with that airline name. Lower case letters at the start of sentences looks odd. But your blog, so your style!
@James
'So “Lufthansa is buying airBaltic” is fine but it would be “AirBaltic is being bought by Lufthansa” ' Thank you. I learnt something new today.
Have you read articles on Simply Flying? That blog is full or mistakes. Most of the time wrong information is being written to the level that one start asking themselves if those writers are aviation geeks. Proofreading is not their thing. Most of the time readers point out...
@James
'So “Lufthansa is buying airBaltic” is fine but it would be “AirBaltic is being bought by Lufthansa” ' Thank you. I learnt something new today.
Have you read articles on Simply Flying? That blog is full or mistakes. Most of the time wrong information is being written to the level that one start asking themselves if those writers are aviation geeks. Proofreading is not their thing. Most of the time readers point out their mistakes but they never correct them. They ignore.
.... The best thing about OMAAT is that they hardly make mistakes and when they makes and the readers point out they make corrections.
I don't know about airBaltic, but this much is clear: everything Lufty touches turns to $h1t.
The main problem is lufthansa sucks,
I have a lot of criticism about LH, but the intellectual complexity of such statement is way below the quality of the LH product.
I find using the LH/AC/UA JV transatlantic to various European gateways like Amsterdam or Paris and then taking Air Baltic from there to the baltics is generally a great option pricewise and connection-wise on through tickets. I'm glad to see further cooperation.
This is veeery good
Will this group ever stop buying stakes in independent airlines that are doing well? Next thing you know Spohr and Co. will have bought stakes in TAP and Aegean as well.
Funnily enough, airBaltic used to have a partnership (shareholding?) with SAS in the past.
Fortunately Aegean is listed on the stock market and unlikely to be interested in going private, but the TAP privatisation is a huge issue and, unless the buyer isn't one of the big 3, it's very likely to undermine competition across the Atlantic.