Lufthansa takes tough stance to make M&A flurry pay

By Maria Sheahan

FRANKFURT (Reuters) - Deutsche Lufthansa (LHAG.DE) could turn an airline sector slump to its advantage by negotiating lower prices and more cost cuts out of acquisitions it agreed last year that threaten to hurt its shares.

The German flagship carrier could pay close to 1 billion euros (862 million pounds) to buy airlines including Brussels Airlines, Austrian Airlines AUA.L (AUAV.VI) and a majority stake in BMI, according to Reuters data.

The deals were remarkable especially as the airline's top rivals were noticeably abstemious, but analysts say that Lufthansa is playing a tactical game well and also has the financial strength to make the deals pay longer term.

"Lufthansa's acquisition strategy currently definitely has more momentum than that of its peers. It can pull that off because it has greater financial power," said Commerzbank analyst Frank Skodzik.

"Lufthansa's negotiations tactics are a smart move. At BMI, it significantly reduced the purchase price, saving shareholder money, and at AUA it is making sure that the acquisition economically makes sense," said Skodzik.

Rival Air France-KLM's (AIRF.PA) only major deal in 2008 was the acquisition of a stake in bankrupt Alitalia, worth around 322 million euros, while British Airways (BAY.L) was most frugal, having failed so far in its pursuit of Iberia (IBLA.MC).

Worry about its dealmaking has contributed to taking a third off Lufthansa shares over the past year but investors still appear more sanguine about the airline than its rivals.

Over the past year, Lufthansa has traded at as much as 16.9 times its 12-month forward earnings, compared with highs of only 10.4 and 12.4 for Air France-KLM and British Airways, respectively.