The European Commission has conditionally approved Lufthansa's takeover of Austrian Airlines (AUA), saying the German flag carrier must make promised changes to resolve competition concerns.
Lufthansa has offered remedies to concerns voiced by Brussels that the deal could leave consumers with reduced choice and higher prices on five routes, most of them between Vienna and German cities.
A source close to the talks told AFP earlier that Lufthansa had offered to give up 19 take-off and landing slots in Vienna to encourage greater competition in order to get the EU commission's vital backing.
The reduction in capacity will be accompanied by a cap on post-takeover growth for Austrian Airlines.
'This case shows that consolidation in the airline sector is possible with proper remedies to safeguard consumers' interests,' EU Competition Commissioner Neelie Kroes said.
Lufthansa signed a deal last year to acquire a 41.6% stake in loss-making AUA from the Austrian state holding company OeIAG for a symbolic one cent per share - or just over €366,000 in all.
The Austrian state pledged to absorb €500 million - or just over a third - of AUA's debts to facilitate the takeover given Lufthansa's concerns over the airline's high level of debt.
The commission announced that the structure of the deal in this way was compatible with EU state aid rules which have been eased during the economic crisis to allow for the 'rescue and restructuring of firms in difficulty'.
The EU executive recognised that 'without the state recapitalisation, Lufthansa will not buy Austrian Airlines'.
Under the Brussels' approved deal, AUA's capacity will be reduced by 15% from its January 2008 level by the end of 2010.
Thereafter its growth will be capped at the average of the rate at other European airlines until the end of 2015 or until AUA reaches operational break-even, whichever comes first.
