Lufthansa Wants To Invest In airBaltic, Latvia’s Flag Carrier

Lufthansa Wants To Invest In airBaltic, Latvia’s Flag Carrier

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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.

We’ve just seen Air France-KLM acquire a stake in Scandinavian Airlines, and we’re also seeing Lufthansa Group acquire a stake in ITA Airways. We’ve also heard rumors that Lufthansa Group is looking to invest in TAP Air Portugal, and now we can add another potential Lufthansa Group investment to the list.

Lufthansa Group looks to take 10% stake in airBaltic

Reliable Italian publication Corriere della Sera is reporting that Lufthansa Group is in the final stages of negotiating a roughly 10% stake in Latvian flag carrier 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.

airBaltic reportedly has an enterprise value of around €310 million, so if Lufthansa were to buy a stake of 10%, that would likely come at the cost of just over €30 million. Since Lufthansa Group is just eyeing a 10% stake, 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 in 2025. 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, which caused the airline to greatly modify its route map.

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.

Lufthansa wants to invest in airBaltic

What Lufthansa Group could gain from airBaltic

Why would Lufthansa Group want to invest in airBaltic? I would assume that there are a few strategic factors at play.

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.

Second of all, strategically I suppose there’s something to be said for having an airline 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 during peak periods and to cover a shortage of aircraft otherwise.

There’s something to be said for being able to partner more closely on fleet planning and the strategy surrounding this. Heck, Lufthansa Group CEO Carsten Spohr is skilled and finding new ways to set up subsidiaries and reduce labor costs, if nothing else, and this fits perfectly into that.

airBaltic exclusively operates Airbus A220s

Bottom line

Lufthansa Group is reportedly looking to purchase a 10% 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.

I have to imagine that if Lufthansa does buy a stake in airBaltic, it’s more about being able to have more access to wet lease aircraft, rather than anything else. Sure, there’s a mild strategic upside to having an airline in Northern Europe, but I’m not sure it would materially change Lufthansa’s global route network (unlike an investment in TAP Air Portugal, for example, which would greatly expand flying to South America).

What do you make of the prospect of Lufthansa investing in airBaltic?

Conversations (21)
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  1. Samo Guest

    Could Lufthansa please stop ruining quality airlines? How can EC keep approving further acquisitions by LHG when they make it clear and open that their strategy is to create a monopoly to increase fares is beyond me.

  2. ImportViking Diamond

    It would be a very Lufty thing to do to just buy a stake in a Nordic-Baltic 8 geo-located airline just to assure some kind of foothold in the region. It's a bit like a dog trying to mark its territory. However, a 10% stake won't get them anywhere except showing good intentions and with a government still controlling a significant part, I can't see this working out like a well thought out scenario with...

    It would be a very Lufty thing to do to just buy a stake in a Nordic-Baltic 8 geo-located airline just to assure some kind of foothold in the region. It's a bit like a dog trying to mark its territory. However, a 10% stake won't get them anywhere except showing good intentions and with a government still controlling a significant part, I can't see this working out like a well thought out scenario with clear goals and gains. If anything, they could have chosen to invest in (or even overtake) Norwegian and compete directly with their former *A partner on domestic flights in Scandinavia: Norwegian Air Shuttle stock is a penny stock now and sells at great P/E levels - for an airline. Their Boeing 737s can easily be retrofitted with a curtain on board to introduce 'business class'. The most difficult part would be to teach potential Norwegian business class staff what the word 'service' actually means, given Janteloven being real.
    The Baltics don't have many people in the catchment areas, which was one of the reasons why Estonian Air and FlyLAL failed: not enough potential customers at the home base. That's probably why Air Baltic survived: fully government owned and Riga being the biggest city in the Baltics by far. However, they are geopolitically forced into a remote corner of Europe now due to Russian and Belarusian sanctions and closed air space over Ukraine, so there's little added value to Europe's route network right now, making me question this move even more.

    Wet least would be the only substantial reason here, but it remains questionable how much pressure Spohr can put on them to force them into any new or better deals here: they already got a good deal when they weren't co-owning the airline.

    In all, somehow this move once again feels like Lufthansa not having a real strategy right now.

    My personal experience with AirBaltic is that it's essentially a low cost carrier (in service levels) trying to act like a legacy flag carrier (in pricing levels). I usually happily choose any alternatives over them. I used them a few times on intra-Baltic routes and to get to Central Asia and the Caucasus region from Europe, but those routes are gone now or flown via extremely inefficient flight paths.

    ps. In terms of 'large airlines and airline groups controlling most of Europe', I think it would be fair to add Ryanair here as they literally see more passengers on board than any other European airline: almost as much as AF/KL and IAG combined in 2022, while serving more routes and operating more daily flights than Delta (thus proving to be a super premium airline, right?). And yes, they do invest in other airlines, too. There was a big soap years ago when they tried to overtake Aer Lingus, for example. Nevertheless, a big factor to be considered when defining European aviation.

  3. Giovanni Guest

    The key strategic rationale for this is quite simple. AirBaltic might be the Latvian national carrier, but it is the primary carrier in Lithuania and, to a lesser extent, Estonia as well.

    By getting in bed with AirBaltic, Lufthansa buys influence with at least two additional seats at the European Council table ensuring that it does not face scrutiny for anti-competitive behaviors. Lufthansa already has five seats at the Council with Germany, Belgium (Brussels...

    The key strategic rationale for this is quite simple. AirBaltic might be the Latvian national carrier, but it is the primary carrier in Lithuania and, to a lesser extent, Estonia as well.

    By getting in bed with AirBaltic, Lufthansa buys influence with at least two additional seats at the European Council table ensuring that it does not face scrutiny for anti-competitive behaviors. Lufthansa already has five seats at the Council with Germany, Belgium (Brussels Air), Austria (Austrian Air), Italy (ITA), and Luxembourg (Lux Air partnership) all captured.

    By tying itself to AirBaltic, Lufthansa buys support from Latvia and Lithuania, as well as Estonia which will not go against their Baltic brothers.

    It's a masterstroke which will ensure that 8 of 27 European Council members will always have Lufthansa's back despite what any Commissioner may attempt.

    Having 8 advocates on the council has added significance when considering that many members (Slovenia, Bulgaria, Slovakia, Czech Republic, Hungary, Liechtenstein, Cyprus, etc.) are unlikely to prioritize aviation issues without a major carrier in their country and others (Romania, Greece, Portugal) are located away from Lufthansa markets and have carriers which largely partner with Lufthansa in a complimentary manner.

    This makes Lufthansa untouchable in European politics.

  4. Barbarella Guest

    We don't know what is in the agreement. With 10% of the company they don't have a controlling interest but they technically have a notional right on about 10 of the A220s with the cheap crews associated with them. Apart from Swiss they did not buy the A220 which they probably regret now. By owning part of the company they will also get access to the books and be in a better position to negotiate...

    We don't know what is in the agreement. With 10% of the company they don't have a controlling interest but they technically have a notional right on about 10 of the A220s with the cheap crews associated with them. Apart from Swiss they did not buy the A220 which they probably regret now. By owning part of the company they will also get access to the books and be in a better position to negotiate the wet lease rates.

    I'm surprised the trade unions in the various LHG legacy carriers don't strike against this obvious attempt at dumping. Scope clause might finally be coming to Europe ?

  5. quorumcall Diamond

    airBaltic is very well run; no need to infect it with the mess of Lufthansa management. just look at Spohr and the Allegris rollout!

  6. Tim Dunn Diamond

    The LH Group is desperately trying to control markets throughout Europe to stop the erosion of its profits from other carriers.
    LH Group airlines are furthest east behind IAG (EI/BA/IB)'s wall between the US and Europe and AF/KL/SK's group which is the strongest and most westerly "wall" in continental Europe.

    LH Group is also the least profitable of the 3 groups even though LH Group has a far higher level of outsourcing to low...

    The LH Group is desperately trying to control markets throughout Europe to stop the erosion of its profits from other carriers.
    LH Group airlines are furthest east behind IAG (EI/BA/IB)'s wall between the US and Europe and AF/KL/SK's group which is the strongest and most westerly "wall" in continental Europe.

    LH Group is also the least profitable of the 3 groups even though LH Group has a far higher level of outsourcing to low cost carriers. And the discussion yesterday shows that IAG Group's low cost carrier segments are barely profitable.

    Unlike in the US where the big 3 make good money on their domestic systems and DL and UA make good money on their international systems, the big 3 in Europe make little money on intra-Europe and short haul international.

    Air Baltic has no widebody operations - it does utilize the full range of the A220. LH is trying to control as much of the carriers it can using a strategy that hasn't worked.

    just as we are seeing the big 3 in the US fracture along financial lines between AA on one side and DL and UA on the other in terms of profitability and domestic size, the same thing is happening in Europe between LH Group and IAG and AF/KL on the other

    1. quorumcall Diamond

      the big 3 in Europe make little money on intra-Europe

      while this is largely true, it is ridiculous to think that they can't make gouging the consumer for so-called "business class" with no proper seat on intra-europe flights all that profitable

      AF/KL/SK's group which is the strongest and most westerly "wall" in continental Europe.

      in the short term yes, but it sounds like AF/KL might have storm clouds on the horizon...

      the big 3 in Europe make little money on intra-Europe

      while this is largely true, it is ridiculous to think that they can't make gouging the consumer for so-called "business class" with no proper seat on intra-europe flights all that profitable

      AF/KL/SK's group which is the strongest and most westerly "wall" in continental Europe.

      in the short term yes, but it sounds like AF/KL might have storm clouds on the horizon in maintaining that wall. KLM is always facing cuts to flying out of AMS, and the French government canceled CDG T4, which is why the AF-KLM CEO was complaining about a lack of gate space at CDG (https://www.ch-aviation.com/news/141718-air-france-klm-urges-cdg-supply-chain-issues-improvements). without room for much expansion at both hubs (and some downgrades at AMS), I could imagine that wall getting weaker

    2. Tim Dunn Diamond

      most European airports are essentially no-growth in terms of number of flights including LHR and DUB.
      There will always be threats from the environmental/NIMBY sector and yet the AMS hub is not shrinking certainly in the number of longhaul flights.

      And CPH has far more potential to grow as a hub than anything air Baltic or even ITA has to offer.

      and let's also not forget that the European hubs in JVs are...

      most European airports are essentially no-growth in terms of number of flights including LHR and DUB.
      There will always be threats from the environmental/NIMBY sector and yet the AMS hub is not shrinking certainly in the number of longhaul flights.

      And CPH has far more potential to grow as a hub than anything air Baltic or even ITA has to offer.

      and let's also not forget that the European hubs in JVs are only part of the story. DL and UA have proven very adept at building their own networks outside of their JV partners' hubs and as much as some would want you to believe, the size of the two in Europe is pretty comparable; DL just happens to use entirely widebody aircraft while UA adds a few dots west of its JV partner hub using narrowbodies but which don't really move the needle in terms of overall TATL size and many of those dots probably aren't that profitable if at all due to the high cost of TATL 3 pilot narrowbody operations.
      B6 can't make A321s to primary cities work but we are supposed to think that UA will succeed by flying narrowbodies to much smaller markets including using 737s which have no premium transoceanic cabins?

    3. Roberto Guest

      From this “ This partnership might be called the A220 partnership since Delta is the largest A220 operator and also will have a large fleet based just on its current fleet and orders.
      airBaltic is an easy partnership to see in some ways - outside of the big 3 alliances, no US partner, and with a route system that very much compliments AF/KL in Eastern Europe where Delta and Skyteam are relatively weak.
      ...

      From this “ This partnership might be called the A220 partnership since Delta is the largest A220 operator and also will have a large fleet based just on its current fleet and orders.
      airBaltic is an easy partnership to see in some ways - outside of the big 3 alliances, no US partner, and with a route system that very much compliments AF/KL in Eastern Europe where Delta and Skyteam are relatively weak.
      airBaltic has had a relationship with SAS in the past.
      It isn't hard to see that Delta is surrounding the LH Group and developing strength in northern and eastern Europe so there is a lot of potential to connect and reshape Europe.
      The real benefit will come from a nonstop connection to the US and it isn't hard to imagine that a single flight to the US might be on Delta's radar.”

      To this “to grow as a hub than anything air Baltic or even ITA has to offer.”

    4. Tim Dunn Diamond

      once again, it amazes me how hard some people work to copy my content from one article to another in order to try to prove me wrong and yet you fail here, Roberto, in even understanding the basic principles at play.

      DL might be the largest A220 operator right now but AF and LH groups both use them. Ben's point that this relationship could be about the A220 has merit - although 10% ownership won't...

      once again, it amazes me how hard some people work to copy my content from one article to another in order to try to prove me wrong and yet you fail here, Roberto, in even understanding the basic principles at play.

      DL might be the largest A220 operator right now but AF and LH groups both use them. Ben's point that this relationship could be about the A220 has merit - although 10% ownership won't change anything including how Air Baltic manages the seasonality of its business which requires wet leasing aircraft to other airlines for parts of the year, something that US airlines are not allowed to do.

      Air Baltic doesn't have intercontinental widebody routes whether it as part of a relationship with DL/AF/KL or LH Group.

      Just because AF/KL/DL have strengthened their relationship with Air Baltic doesn't stop them from developing a stronger relationship with LH Group - AND VICE VERSA. 10% doesn't change anything nor does it provide or require exclusivity.

  7. KVH Guest

    The last thing Europe needs is another airline investment from Onestarhansa.

    The national carrier of a country that is always on the wrong side of history - be it WW2, or being sycophantically pro Israel in its genocide in Gaza.

    1. Scio_nescio Member

      I think 90 years after WW2 we have more pressing topics to be concerned about than faulting the Germans for everything.

      Like a fascist, democracy endangering US president candidate who will ruin an already (and hopefully not formerly) great country!

  8. ZTravel Diamond

    Interesting! Don’t they have a code share agreement with Delta?

    1. ImportViking Diamond

      They have codeshare agreements with Lufthansa (Star Alliance), Air France/KLM, Delta (SkyTeam) and British Airways/Iberia (OneWorld), even.

  9. simmonad Member

    I don't think you can call a 10% stake giving LH an 'in house' wet lease operator. I think that LH would need a much greater stake in the airline to be able to call the shots on what Baltic Air does with its assets.

    1. UncleRonnie Diamond

      The problem is if "a mere 10% stake is allowed by EU now", then it's easy for LH to keep taking a bigger stake and soon they run the whole AirBaltic show.

  10. E39 Member

    I wonder when and if the EU will say stop. The LHG and affiliates is getting very big, and I can’t help but wonder if they’ll have a monopoly in some markets soon.
    Take Italy as an example, both air Dolomiti and ITA being Lufthansa, and Lufthansa having a huge presence there.

    1. Samo Guest

      They won't because EC is subordinate to member states and member states generally love Lufty. EC is very good in standing up against foreign monopolies but less so against internal ones.

  11. Jonathan Guest

    Why won't they invest little bit in their on board products instead of flying airlines all over Europe? LH intra-Europe service is 100% LCC level.

    1. Jonathan Guest

      *Buying (not flying)

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The comments on this page have not been provided, reviewed, approved or otherwise endorsed by any advertiser, and it is not an advertiser's responsibility to ensure posts and/or questions are answered.

quorumcall Diamond

airBaltic is very well run; no need to infect it with the mess of Lufthansa management. just look at Spohr and the Allegris rollout!

2
KVH Guest

The last thing Europe needs is another airline investment from Onestarhansa. The national carrier of a country that is always on the wrong side of history - be it WW2, or being sycophantically pro Israel in its genocide in Gaza.

2
UncleRonnie Diamond

The problem is if "a mere 10% stake is allowed by EU now", then it's easy for LH to keep taking a bigger stake and soon they run the whole AirBaltic show.

2
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