Germany's flag carrier Lufthansa signed an agreement late yesterday in Zurich to take over Swiss International Air Lines for up to 310 million euros (US$409 million), according to the Swiss news agency.

The deal was signed after being endorsed by boards of both companies, the Swiss government and other major shareholders of the Swiss national carrier.

According to the takeover plan, Lufthansa will make an offer to buy out smaller investors starting this May based on the Swiss stock's average price in the 30 days ending Thursday, the registration date of the takeover. The buyout is expected to cost 45 million euros (US$60 million).

The Swiss International Air Lines is jointly owned by the Swiss government with 20.4 percent, Swiss banks UBS with 10.4 percent, Credit Suisse 10 percent, regional authorities of Zurich 10.2 percent and free-float shareholders 15 percent.

Lufthansa said large shareholders would get what it called an earn-out option, for which it would pay an aggregate 265 million euros (US$347 million).

The takeover will take two steps. Lufthansa said it would initially put Swiss shares into a new company called AirTrust, of which it would hold 11 percent, due to air traffic regulations and antitrust rules.

Once antitrust approval is gained, the stake would be raised to 49 percent and after aviation regulatory approval, to 100 percent, the company said.

What's more, Lufthansa will overhaul the finance of Swiss before 2007 in a bid to save 160 million euros a year.

Under the agreement, Swiss will retain its independent brand and maintain its fleet scale of 80 liners.

Swiss will have great "autonomy" in its operation, with headquarters and executive body remaining in Switzerland, except that it will have to make some alternations to its international air routes.

The takeover is regarded by analysts as very feasible as it poses a win-win situation for both companies.

Swiss has suffered massive financial problems since it was created out of the defunct Swissair in 2002. Though it has announced a string of cost-cutting programs and managed to narrow its losses, experts say the airline is unlikely to survive on its own in the long term.

And the merger would help Lufthansa with 50.9 million passengers to make up the gap behind Europe's number one airline Air France-KLM with 64.8 million passengers. British Airways is number three in Europe.

(eastday.com March 23, 2005)