German low-cost carrier Air Berlin announced Thursday it was buying smaller rival DBA in a bid to take on flag carrier Lufthansa in the fierce battle for domination in the skies above Germany.
Air Berlin, already Germany's number two carrier behind Lufthansa, said in a statement it had acquired 100 percent of DBA, a former subsidiary of British Airways.
The exact purchase price was not revealed, but Air Berlin chief executive officer Joachim Hunold said it was "in the mid-two-figure millions" - or around 50 million euros (64 million dollars).
The deal, which was signed in Munich on Wednesday evening, still needed to be given the green light by the German cartel office, but approval was expected by September, paving the way for the two airlines to unveil a joint flight timetable by spring 2007.
The news of a further step in the consolidation of the German airline sector caught investors' imagination, especially since Air Berlin, which only went public in May this year, would not need to raise any additional capital to finance the deal.
At around midday, Air Berlin shares were showing a gain of 0.88 euros or 8.89 percent at 10.78 euros on the Frankfurt stock exchange, after earlier hitting an intraday high of 10.89 euros.
Air Berlin and DBA have cooperated in ticket sales since last November, when they announced customers could buy tickets of both airlines on each other's websites.
At the time, the partners said they did not plan to acquire any cross-shareholdings. DBA has a fleet of 29 aircraft and transported around 4.3 million passengers last year. Air Berlin has a fleet of 58 aircraft, transported 13.5 million passengers and has annual sales of 1.215 billion euros. Together, the two companies expect to carry around 20 million passengers per year.
The German airline industry is in the throes of consolidation, with DBA recently swallowing low-cost carrier Gexx. DBA's former owner, entrepreneur Hans Rudolf Woehrl, has taken a majority stake in charter airline LTU. LTU issued a statement saying that it expected nothing to change from the new tie-up.
"The intensive co-operation between LTU and Air Berlin-DBA will continue," it said.
While the combined Air Berlin-DBA group still ranks far behind Lufthansa in terms of passenger numbers, the merger will nevertheless intensify the pressure on the market leader as airlines struggle to cope with the burden of high fuel prices and the challenges of increased security in face of possible terrorist attacks.
Air Berlin CEO Hunold, estimating that the company's cash pile currently amounted to around 350 million euros, said the deal "will be paid from Air Berlin's liquid funds. Consequently, no capital increase will be required."
The acquisition would also have no adverse effect on Air Berlin's earnings, he said, with the airline anticipating a "handsome profit" for the whole of 2006. Indeed, the take-over of DBA was estimated to boost operating profit by 71 million euros over the next two years.
Lufthansa appeared unfazed by the new alliance.
"The competition in Europe was already very harsh and we've successfully held our own there," a Lufthansa spokesman said. Furthermore, the tie-up between Air Berlin and DBA would not bring any additional capacity into the market, he argued.
Hunold described the acquisition of DBA as "an opportunity not to be missed."