> BLT ED Deutsche Lufthansa — Anand Date, BUY, close €30.7, €36.2 tgt, 18% upside ■ The Air Berlin acquisition is an excellent deal. >50% of Air Berlin flown capacity on routes where Lufthansa + Air Berlin would have combined 80- 100% market share, creating capacity and revenue management opportunities. - The combined group would have a number of strong positions at severely and slightly constrained airports. Our August 2017 note ("Finding a sweet slot") highlighted the benefits of such positions, in terms of network flexibility, better pricing power and tangible slot value. ■ Airline M&A has historically been highly accretive, generally yielding synergies of 3-7% of combined revenues (3/4 revenue, 1/4 cost). ■ Lufthansa is not inheriting legacy costs, only purchasing assets at market rates. It has guided that the deal should reduce unit costs. ■ We see a ROCE of 25-35% on a three year view based on a E1.5bn investment in the deal. ■ The market is not reflecting this in forecasts. We forecast incremental EBIT of €470m by 2019, leaving us 22% ahead of consensus. ■ Antitrust risk is limited: 1) Lufthansa is providing much of Air Berlin bridge Date Acquirer Candidate Total Synergies % of Revenue Sep 2010 Southwest / AirTran US$400 million 3% financing; 2) EC did not block the Lufthansa-Swiss Air deal despite similar local market dominance Aug 2010 LAN / TAMa US$400 millionb 4% ■ Shares should trade up on earnings growth and consensus revisions. May 2010 UAL / Continentala US$1.2 billion 4% Currently trades on 6.5x 1yr fwd P/E. With 5% and 18% adjusted EBIT Nov 2009 British Airways / Iberian US$600 million0 3% growth in 18E/19E, we see consensus upgrades as likely as the deal is Apr 2008 Delta / Northwesta USS2.0 billion 6% priced in. Apr 2005 America West / US Airways US$680 million 7% Deutsche Bank Combined AB + LHA has over half its capacity on routes with >80% share 35.000.000 30:000,000 25.000.000 20,000,000