Lufthansa and Air China Announce Joint Venture

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Chancellor Angela Merkel and a delegation of German businesspeople are visiting China this week. Among other items on her agenda, the good woman pitched for Lufthansa, signing a memorandum of understanding to expand the commercial relationship between Lufthansa and Air China.

The German leader met with the heads of Lufthansa and Air China while announcing a new joint venture between the two airlines. The two carriers first signed a code-sharing agreement in 2000.

For Germany’s flagship carrier, the agreement means Lufthansa and Air China will develop a joint venture that allows revenue sharing on some routes by selling tickets for each other.

Lufthansa shares rose 1.5 percent after the announcement. A Frankfurt-based trader summed up the deal by telling Reuters better access to the vast Chinese market is good for Lufthansa. This is Chancellor Merkel’s seventh visit to China, which is Germany’s third-largest trade partner and ahead of the United States.

The deal means upgraded access to commercial aviation’s second-largest market after the USA. Both airlines are members of Star Alliance, the world’s largest airline alliance, which will have 27 members this month when Air India joins.

The new agreement begins in late October. The two airlines also plan to partner maintenance, repair and other services related to their fleets.

The partnership with Air China adds to the joint ventures Lufthansa now has with United Airlines and with Air Canada between Europe and North America, and with ANA on routes between Europe and Japan.

“Thanks to strategic partnerships with leading airlines, the Lufthansa Group airlines now connect the world’s four largest economies even better,” chairman Carsten Spohr said in a Lufthansa press release.

Joint ventures are a big deal for international airlines. It makes for coequal operations and pricing, as well as better schedules. And the airlines can operate like a single carrier without violating antitrust rules. They can book customers on each other’s flights.

For Air China, the agreement increases its networks and capacity in Europe. They’re already China’s biggest airline. About 49 million passengers were ticketed last year.

Air China’s state-run rivals China Southern Airlines and China Eastern Airlines belong to SkyTeam alliance.

“China-Germany relations are at their best in history,” reported China’s official Xinhua News Agency.

The Tarmac’s View: Most countries block cross-border airline mergers by limiting foreign investment. Joint ventures bash those barriers. But there’s a larger play at stake in this move by Lufthansa. Beefing up connections into China keeps passengers from jumping ship and flocking to fast-growing Persian Gulf carriers, such as Emirates Airline.

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