The European Commission announced on Wednesday it had approved German airline Lufthansa's plans to acquire part of state-owned Italian airline ITA Airways.
The top competition watchdog in the European Union reported concerns that customers could face higher prices and lower quality airline services in and out of Italy due to restricted competition.
EU Competition Commissioner Margrethe Vestager in a statement said regulators were satisfied "that a sufficient level of competitive pressure remains" on Italian air travel after solutions were found.
To appease EU regulators, Lufthansa and the Italian government agreed to facilitate the operation of short-haul flights by rival airlines to Central European countries and share landing slots at Milan airport to reduce Lufthansa's potential domination.
The Italian government and Lufthansa also agreed to manage future competition on long-haul routes between Italy, the United States and Canada during the acquisition using landing slot swaps and improved flight connections.
ITA was formed in 2020 after a restructuring of the failed Italian flag carrier Alitalia, which the government in Rome took over in March of the same year.
After months of negotiations, Lufthansa agreed with the Italian government last May to take over a minority stake of 41%. In return, ITA is to receive €325 million ($350 million) in equity from Lufthansa.
Lufthansa could later acquire a further 49%, then the remaining 10%.
The commission first blocked Lufthansa's move to take a minority stake in ITA in January and opened an investigation into the matter.
Reduced competition on short-haul airline routes between Italy and central European countries were highlighted in the commission's investigation, with Lufthansa and ITA competing on direct and indirect flights.
The alternative for connections between Italy and the central European region was only limited competition from Ryanair, the commission said.
Reduced competition on long-haul routes between Italy, Canada and the US was also noted by the commission as a result of Lufthansa's takeover of ITA.
ITA's dominant position at Milan airport would also be reinforced by Lufthansa's acquisition of the airline's landing-slot portfolio, the commission said.
Lufthansa already operates several hubs in Europe with the four airlines that currently comprise its network: Lufthansa, Austrian, SWISS and Brussels Airlines.
The risk of a veto from Brussels sparked tensions between EU regulators and the Italian government.
In June, Italian Transport Minister Matteo Salvini said a rejection from Brussels would be a "serious attack on Italy," which Rome would "not stand idly by" and watch.
Salvini, leader of the far-right League party, said such a step could lead to the loss of thousands of jobs.
