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The parent company of Polish carrier LOT is buying German airline Condor, creating a new European airline group.

Condor was formerly part of Thomas Cook Group, but it has been searching for a new owner since the latter’s collapse in September. To keep flying over the quieter winter months, Condor secured a loan of $419 million (€380 million) from the German federal government and the state of Hesse.

Although the parties gave no purchase figure, Rafał Milczarski, president of the management board of Polish Aviation Group (PGL), LOT’s owner, called it a “fair price” and one that enabled Condor to pay back the loan.

“The acquisition of Condor fits perfectly into PGL’s strategy. It also secures the future of Condor and offers stability and great opportunities to its employees, customers, and business partners,” Milczarski said in a statement.

“We want to develop Condor’s iconic brand in Germany and also introduce it to other markets in Europe. We wholeheartedly welcome all Condor employees to the PGL family and invite them to build together one of the greatest aviation groups in Europe.”

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LOT was the surprise winner of a sales process that attracted a high double-digit number of initial bidders. Six of these gave indicative offers before three put forward binding offers. Other interested parties included buyout groups Apollo and Greybull, Reuters reported.

Condor’s German rival Lufthansa initially expressed an interest but subsequently dropped out. Competition concerns made any deal between the two unlikely.

The rationale for LOT seems to be the complementary nature of the Condor business. The German airline is predominantly a leisure carrier, flying tourists to destinations across the world. This isn’t a market that LOT has much exposure to.

Condor will continue as a stand-alone brand with its own management team. Together the two airlines carry around 20 million passengers a year.

“The Polish leisure market is a sizeable one as evidenced by Ryanair’s development of its Buzz brand. This move could allow LOT to access that market as well as to gain a potential foothold in the competitive German market with a respected brand,” John Strickland, a UK-based aviation consultant, said.

Milczarski knows the acquisition represents a challenge. He acknowledged at a press conference that Condor needed to replace its aging fleet of Boeing 767 long-haul aircraft. It could potentially order 30 aircraft over the next three years, 10 of which would go to LOT.

The deal is expected to close by April once it has secured antitrust approvals and Condor has exited insolvency protection proceedings.

A Big Deal?

Observers of European airline industry have expected further consolidation across the market with the big airline groups adding to their businesses while smaller carriers drop out of the market.

The LOT-Condor deal offers up a curveball with two smaller players joining forces.

“We fail to see the strategic imperative for LOT or significant synergy benefits for the two companies, which make us doubt the long-term success of this transaction. As such, we do not see a meaningful impact to other European airlines,” Daniel Roeska, senior research analyst at broker Bernstein, said in a note to investors.

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Photo Credit: A Condor Boeing 767. LOT is buying the airline. Condor