LOT Polish Airlines won the race for taking over German charter airline Condor. Why? What are the pros and cons of that deal? What consequences will bring? About this and all the important facts about the LOT-Condor deal, you can read in this post.
When the news spread over a week ago that LOT is seriously interested in buying Condor, I received this message with great skepticism. I thought to myself that LOT want to bite off more than he can chew. But the time has shown that I was wrong and the deal was feasible and looks not so bad.
From the very beginning, LOT was not the favorite for taking over Condor. He had quite a big competition: American Apollo and British Greybull. Both of them are Investment funds with not an impressive airline business experience but in general, these companies had greater financial resources than LOT and that fact played against Polish carrier. Fortunately, there was also an issue that favorable to LOT and that was European Union rules. They allow servicing long-distance routes (such as the lucrative routes to the Caribbean), only if the majority of the company’s shares are in European hands. That rule eliminated Americans and “soon EU leavers” Britains from this competition because Condor didn’t want to lose their most attractive directions. This issue in conjunction with the most sustainable development plan presented by LOT caused that they won German’s trust and final deal.
Behind the scenes, we can hear about 250 mln-300 mln euro. The transaction is expected to be completed by the end of April 2020, after obtaining the necessary approvals from antitrust authorities and Condor leaving the safeguard procedure. The investment will allow Condor to fully and timely payback the six-month loan worth 380 mln euro. The loan was received from German development bank KfW and helped to avoid airline bankruptcy. The transaction would not be possible without the support of the Polish Aviation Group – PGL that owns LOT and few other aviation companies in Poland like LS Airport Services, LS Technics or LOT AMS.
In the current situation, the LOT-CONDOR deal is a win-win situation. Condor can sigh of relief because this transaction will:
- save them from bankruptcy
- gives them a reliable partner
- allow them to pay off a government loan (380 mln euro)
- secure thousands of jobs (Condor employs 4500 people)
- protect the German/European holiday market from the crisis
- help renew the heavily used fleet (especially old Boeings 757 and 767 which fuel consumption is ridiculous high)
For LOT and whole PGL Group, it’s a huge success which breaks stereotypes that companies from Eastern Europe are usually sold to their western neighbors rather than another way around. It can be a sign of something bigger and may contribute to enormous development in the east. On the LOT side we can mention such victories:
- development in the holiday market
- acquiring slots at crowded German airports which in normal reality would not be able to obtain
- increase of the aircraft fleet (LOT: 89 + Condor: 56 )
- laying the foundations for a strong European aviation group
- cooperation with a powerful German brand (the most popular holiday airline among German tourists)
- doubling the number of passengers (2019 stats: LOT – 10 mln, Condor 9,4 mln)
The transaction was received with a huge amount of enthusiasm but we cannot forget about potential threats. First of all, it has to be said that such a massive decision made by not the biggest player in the European market is subjected to risk. Risk of financing. It remains to hope that PGL Group is in really good financial condition and did not overestimate its possibilities. Keep in mind that its whole capital becomes from polish taxpayers and the success of that project will be strictly related to them. It will be also interesting to see Lufthansa reaction. So far German biggest carrier was living in good relations with Condor, bringing them often their passengers. Hopefully, for LOT they will remain in the same form. It should be also remembered that both LOT and Lufthansa belong to STAR ALLIANCE and a good partnership between them is advisable.
So far we don’t know much about detailed plans. I believe that LOT would like to open up the eastern market for Condor. We should not be surprised by the presence of Condor in Poland or Hungary where LOT has a strong position. It is already announced that LOT will order 30 brand new wide-body aircraft and 20 of them will go to Condor to exchange their old fleet. We don’t know yet if or how LOT will use some of the slots in Germany. So there are still “LOT” of question marks. What we know is that one of the promises LOT had to make is no further reduction in employment.
It’s early for summaries. The whole project looks exciting. In conjunction with the new central airport which is expected to be built within the next few years in Poland, it can bring a huge development in this part of Europe. It’s a chance to make the European market more competitive and for LOT to slightly reach some bigger players. Despite the unknown future of that project, we should remain positive and keep our fingers crossed for PGL Group. I believe that German precision and Polish fantasy can bring us some fascinating solutions.