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Etihad Airways Gives Up on Air Berlin As the Struggling German Carrier Applies for Insolvency

Etihad Airways Gives Up on Air Berlin As the Struggling German Carrier Applies for Insolvency

Etihad Airways Gives Up on Air Berlin As the Struggling German Carrier Applies for Insolvency

Just months after Italian flag carrier, Alitalia started insolvency proceedings in Rome, airberlin, another of Etihad Airways equity alliance partners, has suffered the same fate.  The German low-cost carrier today filed a provisional insolvency proceeding at a court in Berlin.  Surprisingly, the news wasn’t broken by airberlin but by fellow German airline, Lufthansa.

Back in June, airberlin’s chief executive, Thomas Winkelmann had told reporters the airline had no plans to apply for a government guarantee after initially starting a preliminary application.  At the time, Winkelmann said the airline was making “good progress with its restructuring.”  He claimed that significant cost savings had been made and pointed towards a wet-lease deal his airline had made with Lufthansa.

In that deal, Lufthansa agreed to wet-lease 38 of the carrier’s aircraft to bolster its own low-cost operation under the Eurowings brand and separately with Austrian Airlines.  Amid speculation that Lufthansa was looking to take over airberlin, its CEO was forced to deny rumours it intended to carry out a “takeover of the company.”

Nonetheless, speaking in June, Lufthansa’s chief executive, Carsten Spohr said he didn’t see an upper limit to the number of aircraft and crew his airline could wet-lease from airberlin.  He commented: “We already support airberlin, in that we have leased 38 planes and set them on our routes.  I can imagine, however, that we would expand this cooperation and lease further airberlin planes and crew.”

Five years ago, Abu Dhabi-based airline, Etihad Airways bought a 30% stake in Air Berlin as part of its equity alliance programme.  Since then, airberlin has gone on to rack up debts of €1.2 billion.  Last year, airberlin lost an eye-watering €781.9 million – even worse than the €446.6 million loss the airline suffered in 2015.

When the airline released its financial results it looked like Etihad was going to stick with its investment – announcing its intention to provide €350 million of new funds for Air Berlin over the next 18 months.  That was on top of the €2 billion worth of investment that Etihad had already ploughed into the beleaguered carrier.

But following its own huge losses it now looks like Etihad is pulling the plug on the future of airberlin.  Earlier this year, the architect of the airline’s investment strategy, James Hogan was unceremoniously let go by Etihad.  The airline has been reviewing its operations since then with funding for 49% owned Alitalia also axed.

Shortly after Lufthansa leaked the news, Etihad released a statement saying the development was “extremely disappointing.”  The airline went onto say that it could no longer offer additional financial support to Air Berlin: “As a minority shareholder, Etihad cannot offer funding that would further increase our financial exposure. We remain open to helping find a commercially viable solution for all parties.”

It continued: “In April this year, Etihad provided EUR 250 million of additional funding to airberlin as well as supporting the airline to explore strategic options for the business. However, airberlin’s business has deteriorated at an unprecedented pace, preventing it from overcoming its significant challenges and from implementing alternative strategic solutions.”

In a press release, Lufthansa said it “is supporting the restructuring efforts of the airline” in partnership with the German government.  Lufthansa said it was taking this step to ensure the aircraft it had leased from airberlin could continue to operate.  However, the airline did admit that it was “already in negotiations with airberlin to take-over parts of the airberlin Group.”

Lufthansa would not be drawn on what parts of the business it was looking to take over but said it could include plans to hire new staff in due course.  Etihad confirmed that it expected airberlin’s operations to continue through the administration process.

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