Air Berlin’s blues
The financially struggling Air Berlin is facing a difficult summer. The plan to marry into money via its subsidiary Niki came to a halt as Etihad said ‘NO’ to a joint venture with TUIfly. Now, the German airline faces even further financial losses, which put a ‘life and death’ pressure to find a partner ASAP.
Etihad and TUI not in talks anymore
Etihad has walked away from the negotiations table with TUI, with whom it was preparing for the launch of a new leisure budget airline serving German, Austrian and Swiss markets. Cost-efficiency is quoted as the reason for this cutting of ties.
In an email letter to AeroTime, Etihad confirmed the news of backing out of the venture. It also stated that “Etihad has taken this decision following many months of negotiations, in good faith, during which time the parties have been unable to reach agreement on the final nature of such a joint venture.”
Etihad has also confirmed that for the time being Niki is remaining in operation, but it is Air Berlin’s problem what to do with it next. “The leisure operations of Air Berlin group will now continue to operate as a separate business unit, under the NIKI brand. Further details of this structure will be announced in due course by Air Berlin”.
“A strong European leisure airline continues to make great strategic sense,” said Sebastian Ebel, member of TUI AG’s Executive Board in an official press release. “After all, the aviation sector is characterized by overcapacity in Germany. However, Niki is no longer available for a joint venture. We will push the repositioning of TUI fly further ahead in order to develop long-term prospects for the airline and its employees.”
The joint venture was supposed to be based on TUIfly and Air Berlin’s leisure airline Niki, allowing both parties to save on costs due to better use of aircraft and crew during winter season. The new budget leisure airline was supposed to have a 60 aircraft fleet and be based in Vienna. The ownership was divided as follows: 25% by Etihad, 24.8% by TUI and 50.2 % controlled by an Austrian foundation.
However, the plan was riddled with obstacles from the beginning. In order to sign the agreement, Etihad had first to acquire Niki, while TUIfly was dealing with the resistance of its employees who feared pay cuts and lay-offs.
A series of unfortunate events
The venture was part of the Air Berlin restructuring plan. Its unsuccessful fate is putting another nail in Air Berlin’s coffin. Moreover, it is only a single episode in the series of Air Berlin’s problems.
In 2016 Air Berlin’s financial loss was estimated to be $877 million and, since then continuing to deepen, it might now be around $1.34 billion. The financial situation is worsened by recent flight cancelations and delays in the beginning of June.
The continuing financial losses force Air Berlin to look for partners FAST, but this is not going according to plan.
Lufthansa, Air Berlin’s rival and the largest German carrier was naturally seen as a possible partner, especially as it had bought 38 aircraft in 2016. But after having talks about salvaging the remaining Air Berlin’s business with Abu Dhabi authorities, even Lufthansa had to admit – the debt is just too big.
The airline is trying to save 8000 jobs by appealing to German authorities - North-Rhine Westphalia (NRW) and Berlin states – for a loan, according to Reuters. However, it is not yet clear whether the governments will agree to lend money, while the airline itself explains this request as “aiming to see whether the regional states would be ready to step in if needed”.
Etihad’s sponsorship running out?
Air Berlin is dependent on cash infusions by its biggest stakeholder Etihad to survive. However, rumor has it that the Gulf’s giant is tired of providing regular financial injections and is re-evaluating strategic options – including selling its share. This version is even more probable keeping in mind the recent airline’s management change, seeking to end the series of not-so-well-placed investments started by its CEO James Hogan, scheduled to leave the company this summer.
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