Issue No.
13378
Andreas Vgenopoulos, vice-chairman of Olympic Air and MIG
Theodoros Vassilakis, Aegean chairman
IF ONGOING talks aimed at merging Aegean Airlines and Olympic Air bear fruit, the resulting Greek carrier would control 95 percent of domestic routes, boast a new 2.6 billion euro fleet and fly to some 50 foreign destinations.
Talks between shareholders for the potential corporate pairing continued this week, a spokesperson at Aegean told this newspaper. She described the alliance being discussed as a potential strategic cooperation, but declined to elaborate.
Sources suggest that a so-called merger of equals (50-50) is being sought by both parties.
Meantime, consumer groups are warning that prices for domestic flights could rise, while the choice of routes and schedules could diminish competition (see below).
No details yet
“Discussions between the main shareholders of Olympic Air and Aegean Airlines have taken place concerning the potential of a future cooperation,” a statement by both airlines released on February 11 said. “However, at this time there is nothing specific to be announced.”
Nonetheless, a deal could happen as early as March, according to market rumours. Under the terms of the privatisation agreement, listed Marfin Investment Group (MIG), which acquired Olympic Air in 2009 for 177.2 million euros, is not allowed to sell the airline before October 2010.
However, according to a report by Isotimia, a financial weekly newspaper, a source at the transport ministry said there could be a loophole in the agreement between MIG and the Greek state which could allow for the merger of the two airlines to take place sooner.
Eftichios Vassilakis, vice-chairman of Aegean Airlines, is expected to meet Transport Minister Dimitris Reppas and Vice-Minister Nikolaos Sifounakis on February 16 to discuss the deal.
On February 11, Andreas Vgenopoulos, vice-chairman of Olympic Air and MIG, reportedly met the same ministers to garner their support for the merger plan.
Smart move?
Analysts described the move as positive for listed Aegean, which is facing aggressive competition from Olympic Air after MIG invested 1.1 billion euros in a new fleet.
Aegean had also invested heavily in new airplanes - in the order of some 1.5 billion euros.
“Overall, a deal between the two carriers could be positive for Aegean, not least by soothing a key recent investor concern over intensified price competition with now privatised Olympic,” HSBC’s Phil Dragoumis, a market watcher, said.
“In addition, a merger could result in cost savings, improved fleet utilisation and an overall stronger domestic champion better positioned to effectively compete in the current [and] challenging conditions on a pan-European level,” Dragoumis added.
By consolidating 95 percent of the domestic market under a single carrier, the deal creating the local monopoly will fall under the eye of both local and European authorities. However, the EU is not expected to object, analysts said, because the new airline would still be relatively small compared to other major European airlines.
Final say
It is therefore expected that Greek authorities will have the final say on whether such a lack of domestic competition is healthy for consumers and the industry.
The government is expected to offer its support in the creation of a strong entity that can best face what may still lie ahead in the global crisis.
Analysts foresee some shedding of domestic routes to smaller rivals in order to satisfy anti-trust bodies.
The newly merged entity is likely to keep the branding of both airlines for the time being, it is, with names such as Olympic-Aegean under consideration.
Sizing them up
Fleet investments
Olympic / MIG: Aegean:
1.1bn euros 1.5bn euros
Number of aircraft
Olympic: 30 Aegean: 32
Number of employees
Olympic: 5,000 Aegean: 2,500
Routes
Olympic: Aegean:
International 20; International 37;
Domestic 30 Domestic 18
Deja vu
THIS IS not the first time that Aegean has bid for Olympic Air.
In March last year Aegean submitted a last-minute offer to acquire the carrier (including rights to logo and slots but excluding aircraft). Aegean Airlines offered 90 million euros for the assets of the flight division of OA, 20 million euros for the assets of Technical Base, and 60 million euros for Pantheon, the debt-free successor of OA (totalling 170m euro).
However, neither the previous government nor Olympic’s union backed Aegean’s bid. The union threatened to walk out of talks if the state even entered talks with Aegean for OA, fearing mass redundancies.
An eight-page letter from New Democracy’s adviser to the sale, Lazard, published by the transport minister, gave potential antitrust reasons and cited the fact that Aegean had not had the chance to conduct due diligence as among the reasons the government chose to accept the offer from MIG.
Sources say that this time around there will be reassurances that most personnel will stay, with management posts trimmed instead.
Consumers worried
GREECE’S Consumer Protection Centre (KPKA) this week expressed its concern over the possible merger of Aegean Airlines and Olympic Air, saying prices could climb.
In expressing its reservations, KPKA cited the recent case of a Thessaloniki-Athens route, in which the round-trip cost of a 173 euros jumped overnight by 50 euros when competition was eliminated.
“KPKA is opposed to the creation of any airline monopoly,” the centre said in a statement.
The consumer group’s concerns were echoed by an industry insider who said he believed the merger would not be healthy for the industry and “least of all for consumers.
“Prices are bound to rise domestically and the value of Olympic, as an airline in its own right, could be undermined,” he added. “Marfin [Olympic’s owner] has been offering some great deals in order to compete against rival Aegean, but in the climate of global recession it may be hard to sustain low prices.”
Another airline source said it was too early to predict whether prices would be impacted and noted that a number of new players have entered the Greek market, such as Athens Airways, which would likely look to expand.
However, the source conceded that, with a 95 percent monopoly, an Olympic-Aegean entity would have a huge competitive advantage.
“It will be up to the competition authorities to deem if this is fair or not,” she added.
ATHENS NEWS 30/08/2010, page: 25
