February 22, 2010 5:39 pm

Greek airlines seek shelter in merger

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Greece’s two largest carriers, Olympic Air and Aegean Airlines, have decided to merge in anticipation of difficult times stemming from the country’s economic crisis and tougher airline competition.

“The crisis played an important role in the decision to merge,” said an official close to Olympic Air.

Analysts expect the creation of a national champion to be complete late this year or in 2011. Aegean Airlines is a listed company with a market cap of about €284m. Olympic Air was bought by investment holding company Marfin Investment Group (MIG) for €177.2m last year.

According to the terms of the agreement, MIG and Vassilakis Group, the main shareholder of Aegean, will have an equal shareholding in the combined entity.

The new company will carry the name and logo of Olympic Air, following a transition period during which the name and logo of Aegean will be used in parallel, the major shareholders said in a statement. It will have two wholly-owned subsidiaries, respectively Olympic Handling and Olympic Engineering.

With the Greek economy contracting 2.0 percent in 2009 and expected to shrink again this year, carriers fear revenues from passenger traffic, especially in domestic routes where they dominate, will suffer.

Moreover, intense competition between the two carriers since the newly-privatised Olympic Air started flying last October increased pricing pressures with the average fare falling last year.

Analysts said they would like to hear more details to form a clearer opinion but overall the merger made sense.

“My first feeling about this deal is positive,” said Antonis Diapoules, an analyst at Alpha Finance. “It is driven primarily by the macroeconomic crisis and concerns about the impact of stiff competition between the two carriers.”

The merger, which requires the approval of the EU and the relevant competition authorities in Greece, would create the biggest carrier in the country with a fleet of 64, mostly Airbus, aircraft.

“I would expect the new company to be asked by the competition committee to give up some domestic routes so that smaller airlines increase their share in the domestic market,” said John Stamatakos, analyst at Proton Bank.

Aegean and Olympic Air control more than 95 percent of domestic passenger traffic but a much smaller portion of international traffic to and from Greece. Analysts estimate the two companies have a share of 30 percent or more of the overall market.

Aegean flew some 6.57m passengers in 2009 of which 3.75m on domestic routes and 2.82m on international routes. Olympic is estimated to have flown more than 4m last year.

Aegean envisages joining Star Alliance by June 2010 and analysts expect the new entity to take Aegean’s place in the grouping.

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