Published by Global Banking & Finance Review®
Posted on March 5, 2025
4 min readLast updated: January 25, 2026
European airlines are moving towards smaller M&A deals to reduce costs and regulatory scrutiny, with major players like Lufthansa and Air France-KLM taking minority stakes.
By Joanna Plucinska and Andres Gonzalez
LONDON (Reuters) - Europe's major airlines are targeting smaller deals and tie-ups after facing regulatory push-back against full mergers, focusing on minority stakes to strengthen their position against rivals.
Reuters spoke with two airline executives and others with knowledge of ongoing deals, who said they were pivoting towards smaller stakes to cut expenses and time spent on additional regulatory scrutiny.
The trend towards more bite size deals and tie-ups marks a shift for the region's carriers, which are trying to unify a fragmented market to compete with rivals in a more consolidated U.S. market and state-funded behemoths in the Middle East.
There has been a flurry of smaller deals. Last month Lufthansa took a 10% stake in Latvian carrier airBaltic for 14 million euros ($14.72 million) to improve its wet lease partnership, an arrangement allowing it to more easily share aircraft, pilots and crew.
Air France-KLM and Lufthansa have expressed interest in taking around a 20% stake in Spain's Air Europa, sources told Reuters, after British Airways-owner IAG dropped a full takeover plan in 2024 after years of talks.
Air France-KLM and Lufthansa either declined or did not respond to Reuters requests for comment. The stake is valued at 200-240 million euros, according to one source.
Portuguese carrier TAP - still a potential target for a full takeover and valued at about $1 billion - is now in talks to finalise the sale of a less than 50% stake. It has attracted interest from various European airlines, including Air France-KLM, whose CEO said last week that it was ready to present its pitch for the airline's partial privatisation.
"There does seem to be somewhat of a shift towards taking smaller stakes in target airlines in Europe at present," said Dudley Shanley, Dublin-based analyst at Goodbody, adding though he still expects consolidation of the market to happen.
"The smaller stakes reduce the regulatory burden and scrutiny in the near term, though they also reduce the ability to extract both revenue and cost synergies."
European regulators are worried major takeovers will lead to higher air fares and hit consumers, a concern which stymied the IAG-Air Europa deal. Germany's Lufthansa did finally seal a 325 million euro deal to take a 41% stake in Italian carrier ITA Airways in January, but talks with Brussels over remedies took over a year.
Aviation analyst James Halstead said that smaller stakes allowed airlines to spend less money to "test out the waters", adding getting past regulators like the European Commission's Directorate-General for Competition had become "complex and expensive".
"The effort of going through approval for one of the three airline groups that has 60% of the network traffic into and out of Europe is becoming too onerous," he said.
The European Commission declined to comment.
NOT WITHOUT RISK
Aviation executives have long called for consolidation in the European airline sector to support smaller national carriers performing poorly and sucking up state budgets.
But smaller deals and commercial agreements such as flight network sharing are becoming more attractive as regulatory scrutiny rises. Negotiations over concessions and competition concerns can be avoided with a stake under 20%, as in the case of Air France-KLM's 19.9% stake in Scandinavian Airlines (SAS), completed in August last year.
It's not without risk, however.
Abu Dhabi's Etihad Airway's attempts to take minority stakes in airlines including Air Berlin and Aer Lingus proved to offer few benefits and bled cash. The airline ended up pulling out of partnerships, like its investment into the now defunct Alitalia.
Meanwhile, one source with knowledge of talks surrounding a potential minority stake in Air Europa said the benefits with commercial tie-ups can also lead to increased scrutiny from antitrust regulators and need to be crafted carefully.
And with 72% of airline capacity in Europe already held by six of the largest listed airlines, according to a note from brokerage consultancy Bernstein, that could lead to even less appetite from regulators to greenlight major tie-ups.
"Consolidation is designed to cut out competition, and cutting out competition is sometimes not very good for the consumer. So maybe they're right to turn down or reduce the ability to take full mergers," Halstead said.
($1 = 0.9508 euros)
(Additional reporting by Yun Chee Foo in Brussels; Editing by Adam Jourdan and Susan Fenton)
European airlines are targeting smaller deals to limit costs and reduce regulatory scrutiny, as they face push-back against full mergers.
Lufthansa recently acquired a 10% stake in airBaltic, and Air France-KLM and Lufthansa are interested in a 20% stake in Air Europa.
Smaller stakes can lead to increased scrutiny from antitrust regulators and may not provide significant revenue or cost synergies.
European regulators are concerned that major takeovers could lead to higher airfares and negatively impact consumers, which has affected merger approvals.
The European airline market is fragmented, with six major airlines holding 72% of the capacity, prompting a shift towards consolidation through smaller deals.
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