Lufthansa eyes European deals: CEO

FRANKFURT: Lufthansa remains on the lookout for acquisitions in Europe after it agreed to buy a stake in US low-cost carrier JetBlue Airways, the German airline's chief executive said on Friday.

The two companies said on Thursday that Lufthansa would buy a 19 per cent stake in JetBlue for about $300 million. The deal marks the first major investment by a European carrier in a US point-to-point airline.

"It is a financial transaction of high strategic importance," Lufthansa CEO Wolfgang Mayrhuber told a news conference in Frankfurt. However, Europe remains the most important region for future acquisitions by the German flag carrier, he said, adding, "It's not a question of either or." He did not elaborate.

Last week, Lufthansa decided not to bid for loss-making Italian airline Alitalia. Mayrhuber reiterated this week that Lufthansa is interested in Spain's Iberia but that the price is too high. "Lufthansa demonstrates once again its stringent financial criteria and its policy to avoid any major risks," Sal Oppenheim said in a note, commenting on the JetBlue deal.

Lufthansa ranks No 2 among European carriers by traffic, behind Air France-KLM and ahead of British Airways. At 1340 GMT, Lufthansa's shares were down 0.9 per cent at 18.19 euros. Air France-KLM fell 1 per cent and shares in British Airways dropped 1.2 per cent.

The DJ STOXX European travel and leisure index, which includes airlines, was 0.2 per cent lower. The JetBlue deal, which requires approval from US regulators, is expected to close in the first quarter of 2008. US law currently caps foreign ownership of US airlines at 25 per cent.

"The move will give Lufthansa a first foothold and more insights into the U. market," Sal Oppenheim said. Andrew Light, an analyst at Citigroup, said the rationale appeared to be "an opportunistic investment for the long term."

A loyal, largely New York-based customer following, plane orders and options with Airbus at attractive prices and runway slots and a terminal at the increasingly congested JFK airport in New York were among the US carrier's main assets, he said.

JetBlue is the No 2 US discount carrier, behind Southwest Airlines Co. Mayrhuber said the deal would enable Lufthansa to expand its offerings of US destinations. Lufthansa will pay $7.27 per share, a 16 per cent premium to JetBlue's closing price of $6.25 on Wednesday.

Andrew Fitchie, an analyst at Collins Stewart, said JetBlue's valuation at 55 times estimated 2007 earnings and a 2008 price-to-earnings multiple of 21 was hardly cheap based on the current outlook.

But Sal Oppenheim analysts, taking a longer view, said, "In view of the growth prospects, a 2009 P/E multiple of 15 does not seem too aggressive and Lufthansa pays just 1.6 times book value."