Lufthansais in early-stage talks with SAS about taking over the Scandinavian carrier, in a move that would further consolidate its position as Europe's secondbiggest airline.
As a diversified airline group, the German carrier has taken the knocks on cost and demand better than most rivals. It has made no secret of the fact that it sees the airline industry crisis as a chance to pick up bargains.
Speculation about talks saw SAS stock suspended on the Scandinavian stock exchanges and the group to declare it was "conducting talks about a possible structural solution" to cost problems that have seen staff laid off and aircraft idled.
While Lufthansa declined to comment, people with knowledge of the talks said both companies had been in contact for several weeks. They stressed that it was too early to say if talks would result in a full-blown take-over at any time soon.
SAS's stock price has fallen two-thirds in the past 12 months, with investor sentiment suffering when the group postponed the listing of Spanish unit Spanair - only weeks before the fatal Spanair crash at Madrid airport.
However, SAS shares rose sharply yesterday, closing up 7.1 per cent at Skr55 and valuing the company at about Skr9bn ($1.34bn). Lufthansa's share price was largely unchanged at Thursday's close at €15.04.
An analyst at a Swedish investment bank, who declined to be named, said SAS stock was relatively cheap. But he said there were "huge political obstacles involved in getting all three governments" to go along. The Swedish government owns 21.4 per cent, and Norway and Denmark each hold 14.3 per cent.
A takeover would have to blend economic logic with social policy, said bankers with experience of Sweden's stance.
Earlier takeover attempts of Swedish companies in which the government owns a stake - such as France Telecom's proposed takeover this year of TeliaSonera - have foundered partly because of Stockholm's reluctance to commit.
Lufthansa, Air France-KLM and British Airways have long been considered the three carriers around which Europe's fragmented airline market will consolidate. Energy costs have lent this process renewed momentum.
British Airways is in talks with Spanish rival Iberia, Lufthansa is confident of finalising talks with Brussels Airlines, and both it and Air France are interested in buying the government stake in Austrian Airlines.
Austrian, like SAS, is a partner in the Lufthansa-led Star Alliance group of carriers, making closer ties logical. But Lufthansa has been cautious about takeovers, even though it is praised for integrating Swiss in 2005.
The German group had abandoned earlier talks with Swiss, and SAS may prove to be an equally tortuous process amid thorny issues such as job cuts and hub relocations.
