felixZRH
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LH Buys 4.95% Of Fraport (FRA)

Fri Oct 28, 2005 10:51 pm

According to Bloomberg and German sources LH is strengthening its position in FRA also on the stock market.
Any ideas where this will lead to?

Happy discussion
Felix
 
HAJFlyer
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RE: LH Buys 4.95% Of Fraport (FRA)

Fri Oct 28, 2005 11:00 pm

The rationale behind this is to give Lufthansa the ability to play a role in the way the airport develops,'' said Per-Ola Hellgren, an analyst at Landesbank Rheinland Pfalz in Mainz, Germany. ``It's probably a positive step for both companies.''

I would assume that the rationale behind this move is to establish LH as a strong minority shareholder who is able to block any moves by Fraport that might compromise its position.

For Germany this new trend to establish cross share holding between customers and suppliers (e.g. Volkswagen and Porsche deal) is a step backwards to the bad old days and does nothing to open up the ailing economy and make it more competitive.
 
Andreas
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RE: LH Buys 4.95% Of Fraport (FRA)

Fri Oct 28, 2005 11:00 pm

Well I certainly don't expect them to go for 30% or anywhere close to a controlling stake (which would lead to a general takeover bid afterwards, anyway). I suspect this a mean to better check (and probably influence) decisions of Fraport that have consequences for LH. As we all know LH has not been happy with many of Fraports decisions as far as FRA is concerned.

They just want to have some kind of control as far as their major hub is concerned.
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HAJFlyer
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RE: LH Buys 4.95% Of Fraport (FRA)

Fri Oct 28, 2005 11:08 pm

Quoting Andreas (Reply 2):
They just want to have some kind of control as far as their major hub is concerned.

That is certainly understandable, but would it not be better to attempt to achieve a win-win situation through negotiations with Fraport rather than engage in what is essentially anti-competitive behaviour ?

Fortunately the stock market and the business media frown on these deals as
was demonstrated by the recent plunge of the Porsche shares after the announced the VW deal.

I firmly believe that LH should stick to its core competences and not get involved in any additional businesses. BTW, they will soon have a three hub operation including FRA, MUC and ZRH, so they should have more than enough leverage with Fraport already.
 
Andreas
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RE: LH Buys 4.95% Of Fraport (FRA)

Fri Oct 28, 2005 11:16 pm

Quoting HAJFlyer (Reply 3):
but would it not be better to attempt to achieve a win-win situation through negotiations with Fraport rather than engage in what is essentially anti-competitive behaviour

Wellll...erm...yes  Wink You know, negotiations is always a good way to achieve your goals, but since Fraport knows quite well that LHs position as far as FRA is concerned looks rather limited, since they cannot just move away, it is better to have a stake in Fraport...let's just say it helps to negotiate.

And as I pointed out, in recent years LH was not always happy with Fraport!

Quoting HAJFlyer (Reply 3):
Fortunately the stock market and the business media frown on these deals as
was demonstrated by the recent plunge of the Porsche shares after the announced the VW deal.

Since LH is Fraports largest client and somewhat dependent on Fraport, they will certainly NOT frown upon this deal, since it is pretty clear that they do NOT really want to run an airport. btw given that way they run their hub in FRA I'd expect them to be quite able to run an airport!

Quoting HAJFlyer (Reply 3):
more than enough leverage with Fraport already.

If we were talking ZRH or even MUC, I'd agree, but not in the case of FRA.
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felixZRH
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RE: LH Buys 4.95% Of Fraport (FRA)

Fri Oct 28, 2005 11:17 pm

I read in Börse von Spiegel Online that LH wants to become Member of the Supervisory Board of Fraport in order to control the decisions of Fraport.

Quoting HAJFlyer (Reply 3):

I firmly believe that LH should stick to its core competences and not get involved in any additional businesses. BTW, they will soon have a three hub operation including FRA, MUC and ZRH, so they should have more than enough leverage with Fraport already.

On a side note: LH owns already a part of Terminal 2 in MUC.
 
Andreas
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RE: LH Buys 4.95% Of Fraport (FRA)

Fri Oct 28, 2005 11:38 pm

Quoting FelixZRH (Reply 5):
LH wants to become Member of the Supervisory Board of Fraport in order to control the decisions of Fraport.

I suppose the idea was born in the aftermath of Fraports behaviour in connection with airport Hahn and the fees they chose to negotiate with a certain LCC...when it came to make a deal with LH, they were extremely rigid and needed every cent to survive.  Wink Big grin

Read Sun Tsu, the Art of War: If you go to war (negotiations), better know your enemy BEFOREHAND! Obviously Mr. Mayrhuber likes to read good books  Wink
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A350
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RE: LH Buys 4.95% Of Fraport (FRA)

Sat Oct 29, 2005 1:01 am

Quoting Andreas (Reply 6):
I suppose the idea was born in the aftermath of Fraports behaviour in connection with airport Hahn and the fees they chose to negotiate with a certain LCC...when it came to make a deal with LH, they were extremely rigid and needed every cent to survive. Wink Big grin

It's a very normal affair that fees for Ryanair at HHN are much lower than those for LH at FRA. HHN is a very remote airport and offers a very simple service. Same applies to cargo services into HHN. I'm a bit afraid LH could try to play against the competition with unfair means. That would be a lose-lose situation for Germany's economy and Fraport.

We had the same situation in Berlin. Air Berlin was lobbying to keep landing fees at SXF at the same level as at TXL, which was absolutely ridiculous. Since SXF offers lower landing fees it is booming.

A350
 
Andreas
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RE: LH Buys 4.95% Of Fraport (FRA)

Sat Oct 29, 2005 1:50 am

Quoting A350 (Reply 7):
It's a very normal affair that fees for Ryanair at HHN are much lower than those for LH at FRA

It is NOT normal to provide services BELOW cost. You can do that to start up a business, quite acceptable, but that was not the case. It was Ryanair that blackmailed Fraport and the state government.

Ok, one might argue that is competition, fine...but you do have to grant the same right to all competitors.

Quoting A350 (Reply 7):
Since SXF offers lower landing fees it is booming

Being a Berliner myself, I'm not sure if we talk about the same SXF...SXF booming?  Wink Big grin

Besides you're right, but so is Air Berlin: At least they tried, and BBI knew why they didn't give in: Because TXL's location is worth pure gold, one of the very few airports in a large city that actually deserves to be called city airport!

When shuttling between work and home (FRA-TXL), I would NEVER use SXF if I don't have to, because then the train would be a good alternative. And looking at the pax numbers, a lot of people think so...still Air Berlin is entitled to lower its cost...and LH is entitled to go for lower prices at FRA.

And with FRA being one of the more expensive superlarge airports in Europe, it sounds to me rather that they try to lift some dead cost from their account, and not likea lose-lose-situation.
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HAJFlyer
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RE: LH Buys 4.95% Of Fraport (FRA)

Sat Oct 29, 2005 2:10 am

Quoting A350 (Reply 7):
I'm a bit afraid LH could try to play against the competition with unfair means. That would be a lose-lose situation for Germany's economy and Fraport.

I couldn't agree more. This sends a negative message to potential investors well beyond the aviation sector. Germany needs more competition to shed its role as "the sick man of Europe" and not such anti-competitive behavior by its flag carrier.

Japan´s economy is slowly recovering after spending more than a decade untangling overly cozy buyer-supplier relations cemented by cross share holdings and now Germany Inc. embarks on this anachronism.  banghead 
 
Andreas
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RE: LH Buys 4.95% Of Fraport (FRA)

Sat Oct 29, 2005 3:34 am

Sorry gentlemen, but you're way off the point!! We're talking a sub-% shareholding...LH can do absolutely NOTHING, they even need third party support to get a seat on the supervisory board.

Basically I fully agree, the so-called Deutschland AG is a horrible mess that needs to be divested a soon as possible, but this argument does not count here. It would, if LH went for a 30% shareholding, or 25% at least, but there is NO indication that they intend to do so. There's really no need to overblow these sub-5%!!
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HAJFlyer
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RE: LH Buys 4.95% Of Fraport (FRA)

Sat Oct 29, 2005 3:48 am

Quoting Andreas (Reply 10):
It would, if LH went for a 30% shareholding, or 25% at least, but there is NO indication that they intend to do so. There's really no need to overblow these sub-5%!!

OK, you have definitely got a point there.

If you are convinced that 5% stake is too little to influence corporate decisions at Fraport, then why did LH acquire the stake ? As a financial investment ? That makes no sense, since there certainly better ways to create shareholder value.

I would assume (I have no information to support this, it is just a gut feeling) that this is basically a scare tactic to intimidate the Fraport management and make sure they give in to LH´s demands more easily.

This deal is not positive whether you look at it from a corporate governance / ethics or a shareholder value angle.
 
zvezda
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RE: LH Buys 4.95% Of Fraport (FRA)

Sat Oct 29, 2005 4:32 am

No airline should ever be allowed to own any part of any airport and no airport should ever be allowed to own any part of any airline. This is an essential requirement of a competive air transport market. In fact, the only other requirement is that no company should be able to own any part of more than one airport within competitive distance (100 to 200km) of each other. Those two rules (properly detailed) are all that's needed.
 
Andreas
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RE: LH Buys 4.95% Of Fraport (FRA)

Sat Oct 29, 2005 1:02 pm

Quoting HAJFlyer (Reply 11):
a scare tactic to intimidate the Fraport management and make sure they give in to LH´s demands more easily.

Sorry, but I just had to  rotfl 

HAJFlyer: You better take a look at who we are talking about: 2 big boys are facing each other, each in his own playing field, and these playing fields are dependent, that's all. As I said above, Fraport did a few things in the past, that were nor very friendly, but instead had all the makings of a monopolist. In fact, Fraport IS a monopolist and it treats customers just as you would expect it from a monopolist. (besides being extremely well connected on the political level...please keep in mind where Fraport came from!!). LH is a giant, but far from being a monopolist, so they do what they think is best fit to take a little advantage in upcoming decisions and negotiations.

Quoting HAJFlyer (Reply 11):
That makes no sense, since there certainly better ways to create shareholder value.

Does that raise shareholder value? Frankly I don't know, it could well be if it gives them some leverage in negotiations...but neither do you, and as opposed to the odious Porsche/VW deal, LH has in the last 15 years NEVER made any M&A deals that were obviously wrong from the very beginning (some went terribly wrong, like e.g. LSG Sky Chefs, but it was clearly intended to be a good deal).

Besides, the investment isn't that big, LH sits on a truckload of cash and can easily afford that investment...they can sell it as easily, too, if it doesn't help them. Therefore your statement:

Quoting HAJFlyer (Reply 11):
This deal is not positive whether you look at it from a corporate governance / ethics or a shareholder value angle.

is in fact a non-issue in terms of size and consequences, except people hear LH buys Fraport and begin screaming blue murder about competition going down...it is not and it could very well be a good thing for LH...if not there's no damage, to sell a shareholding that small you don't even need a trade sale, you can do it over that counter without losing money.

Again, as we say in Germany, you have to "leave the church in town"  Wink, this is a small deal, with a few chances on behalf of LH, virtually no risk in terms of shareholder value, and certainly no consequences in competitiveness as far as Fraport is concerned.
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TriStar500
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RE: LH Buys 4.95% Of Fraport (FRA)

Sat Oct 29, 2005 6:16 pm

This deal is a very significant political move - Lufthansa is clearly stressing their continuing interest in FRA as their main base and the extension projects related to the airport, and it also illustrates a certain scepticism, whether "alternative" hubs like ZRH and more importantly MUC could outrank FRA in their importance for LH in the medium term.
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