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Business

Lufthansa Takes Controlling Stakes in BMI, Eurowings

Despite issuing an earnings setback, Lufthansa is to take controlling stakes in British airline BMI and German airline Eurowings, Germany's largest airline said. It may also become the owner of Austrian Airlines.

Planes of German airline Lufthansa are seen at the Tegel airport in Berlin

Lufthansa issued a profit warning shortly before announcing plans to expand

Lufthansa already holds minority stakes in both Eurowings and BMI, which was formerly named British Midland. High fuel prices earlier this year and a looming recession have put heavy pressure on smaller, weaker airlines in recent weeks, speeding up consolidation in the aviation industry.

In Frankfurt, Lufthansa said on Wednesday, Oct. 29, that it had received an offer from another Eurowings shareholder, AK Industriebeteiligung, for 50.9 percent of the airline and this would be acquired by the end of the year.

Earlier plans to merge Eurowings, which mainly flies routes within Europe, with an airline run by German travel company TUI failed.

Control of BMI is to be acquired from businessman Michael Bishop, Lufthansa said. The British airline's landing and takeoff slots at Heathrow Airport, the principal London airport, add to its value to Lufthansa.

In a third possible merger, Lufthansa was also the only company to put in a binding bid for Austrian Airlines earlier this week.

Financial crisis bites into Lufthansa profits

The pair of Lufthansa takeovers comes on the heels of a profit warning issued by the company Tuesday.

Lufthansa said that it expects operational earnings this year to total just 1.1 billion euros ($1.4 billion), down from its past forecast of 1.4 billion euros and blamed the drop on high fuel costs and weakened sales due to the global financial crisis.

The airline posted 149 million euros in net profit between July and September, while operating profit in the third quarter plunged by 53.4 percent to 279 million euros, the company said in a statement.

Wolfgang Mayrhuber, chairman of Lufthansa

Mayrhuber is confident that Lufthansa has the tools to survive

"This is a respectable result taking into consideration the considerable strains being felt as a result of the ongoing crisis in the financial markets and the overall economic situation," chairman Wolfgang Mayrhuber said. "In addition, we are working on our productivity, our measures to improve fuel consumption and the reduction of external costs."

In the first nine months of the year, operating profit fell by 9.3 percent to 984 million euros. Net profit during the same period plummeted by 65.1 percent to 551 million euros.

The company's results had been inflated in 2007 by Lufthansa's acquisition of the airline Swiss and the sale of its stake in the British travel group Thomas Cook.

Swiss suffered heavy losses during the third quarter, with operating profit sinking by 76 percent to 112 million euros.

Lufthansa forecast only minor growth in passenger numbers due to market turmoil, expecting them to rise by just 0.8 percent in 2009 versus 5.2 percent this year.

Degrees of suffering

The Lufthansa figures follow on from seemingly endless bad news coming from Europe's airline industry.

The Denmark-based low-cost carrier Sterling Airways filed for bankruptcy on Tuesday while Air France-KLM last week said it would struggle to meet its billion-euro earnings target and that it would trim its investment plans.

Alitalia jets parked at Rome's Fiumicino airport

Alitalia is one European airline currently suffering

The future of ailing Italian carrier Alitalia also remained uncertain. The airline, which is 49.9 percent state-owned, is losing about three million euros a day and has debts totaling some 1.2 billion euros, which will have to be shouldered by the Italian taxpayer. However, it could be saved by British Airways which earlier this month reiterated the company's interest in a partnership with Alitalia.

Non-European airlines were feeling the strain too, with carriers worldwide expected to lose around $5.2 billion this year owing to sharply higher oil prices and declining demand, the industry association IATA said on October 17, with losses expected to continue next year.

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