The European Union's anti-trust authority launched an investigation over Lufthansa's proposed stake in Italy-based airline ITA Airways over concerns that it could threaten competition.
The regulators have blocked for now Lufthansa's planned minority stake in the Italian airline ITA Airways.
The European Commission said it had "preliminary concerns that the transaction may reduce competition in the market for passenger air transport services on several short-haul and long-haul routes in and out of Italy."
Lufthansa, one of Europe's biggest carriers, last year agreed to pay 325 million euros ($350 million) for a 41% stake in ITA and that the Italian finance ministry would also contribute 250 million euros.
The deal provided the German company with various options to increase its stake or acquire ITA Airways outright at a later date.
The commission said it was notified of the transaction on Nov. 30, 2023, and on Jan. 8 this year, Lufthansa submitted commitments to address some of its concerns.
"However, these commitments were insufficient, in terms of both scope and effectiveness, to clearly dismiss the commission's preliminary concerns," it said in a statement.
The EU's competition commissioner, Margrethe Vestager, said the EU wanted to make sure that the deal did not lead to "higher prices, less capacity or lower quality for passenger air transport services in and out of Italy."
The commission must make a final decision by June 6 this year.
ITA was formed in 2020 after restructuring the failed carrier Alitalia, which the government in Rome took over in March of the same year when various takeover bids failed.
After months of negotiations, Germany's Lufthansa Group agreed with the Italian state last May to take over a minority stake of 41%.
According to the agreement, Lufthansa can also acquire a further 49% of ITA shares from 2025 under certain conditions and the remaining 10% at a later date.
Since its announcement, the deal between Lufthansa and the Italian state has been subject to regulatory reviews at the national and European level.
Lufthansa said it had recently made concessions to EU regulators and was in close dialogue with all parties involved.
