Austria is open to all options for Austrian Airlines but a strategic partner taking a stake in the national carrier was the most likely scenario, Austria's finance minister said on Tuesday.
Wilhelm Molterer said the state, which holds around 43 percent of Austrian Airlines through its investment arm OeIAG, could reduce its stake, though it was unlikely to go below 25 percent under the current government -- a coalition between social democrats and conservatives.
"Given current economic conditions, the competitive situation and the high oil price I think a stand-alone solution is the most unlikely scenario and a strategic partnership the most likely one," Molterer told journalists.
Airlines worldwide are under mounting pressure to consolidate or cut back unprofitable routes to cope with unprecedented oil prices which have caused a slew of bankruptcies in the sector.
Austrian Airlines said late on Monday it would launch an evaluation for a potential strategic partner and also warned it would make a net loss this year due to high fuel prices.
The government said previously the national carrier's tail fin should stay in Austria's red and white.
Yet Chief Executive Alfred Oetsch has not ruled out the sale of a majority stake if plans for the airline do not go as planned.
Two years ago OeIAG asked consultancy Roland Berger to evaluate Austrian Airlines' strategic options, although it never published the results.
This time, the airline's management, with Boston Consulting Group, will examine the potential of a strategic partnership and what course of action the owners ought to take, Austrian Airlines said in a statement late on Monday.
Initial results of this were expected at the end of July and a detailed recommendation by the end of September.
Germany's Lufthansa, which many analysts see as the most natural fit for Austrian Airlines, has said previously any move should be a friendly one, and reiterated on Tuesday it would look at Austrian Airlines if it was approached by the owners.
Lufthansa has said it is only interested in buying a majority stake in rivals and has cited its takeover of Swiss, which launched a major restructuring before it was bought, as a model for future acquisitions.
The German airline said it wants to be active in European airline consolidation, though has said it is not under pressure to make acquisitions and would seek to avoid hanging a financial millstone around its neck.
Russian flag carrier Aeroflot said on Saturday it was ready to discuss buying into Austrian Airlines and was waiting for the government's offer to start talks.
Last week, Air France-KLM Chief Executive Jean-Cyril Spinetta was quoted by an Austrian weekly as saying the airline was observing the situation at Austrian Airlines, though took priority.
Speculation that Austrian Airlines might have to find a partner intensified after investor Sheikh Mohamed Bin Issa al Jaber last month cancelled his plan to take a 20 percent stake, saying he had been deliberately misled about the results.
In April, the airline posted a first-quarter loss of earnings before interest and tax (EBIT) of EUR50.1 million euros, much worse than expected, sending its shares lower.
The airline said on Monday that due to high jet fuel prices it expected a full-year net loss of between EUR70 million (USD$108.9 million) and EUR90 million and its outlook for 2009 would strongly depend on price developments.
