Lufthansa set to swoop on Air Berlin

By Bloomberg News, September 23 2017
Lufthansa set to swoop on Air Berlin

Lufthansa and EasyJet were selected as the preferred bidders for the main assets of insolvent Air Berlin, handing both airlines a rare chance to rapidly expand in Europe’s biggest economy.

The creditors’ committee will continue talks with the two carriers until October 12 with the aim of selling Air Berlin’s transport assets, the company said in a statement late Thursday. Talks with bidders interested in other assets will continue in parallel, Air Berlin said. Neither Lufthansa nor EasyJet had bid for the whole company, making a break-up inevitable.

Lufthansa eager for Air Berlin jets

Lufthansa had bid for Air Berlin’s leisure arm Niki, plus 38 jets it already leases from the carrier, Chief Executive Officer Carsten Spohr told journalists on Wednesday. That would hand Germany’s largest airline 73 single-aisle aircraft from its rival, about half of Air Berlin’s fleet and close to the maximum Spohr said he’d be allowed to add without violating antitrust rules.

EasyJet was interested in unspecified other assets. The low-cost specialist had earlier said it is interested in “parts” of Air Berlin’s short-haul business, without being more specific.

That creates uncertainty about Air Berlin’s long-haul fleet, including 17 Airbus SE A330s. EasyJet doesn’t fly such planes and Lufthansa has said it isn’t interested in the aircraft, even as it seeks to expand the long-haul operation of its budget Eurowings unit.

Niki’s fleet includes 21 Airbus A321 jets flown out of Dusseldorf and Vienna, plus 14 Boeing 737s that it’s leasing under a long-term contract with TUI AG’s German airline TUIfly.

Those 14 aircraft may be split between TUIfly and Eurowings, which will likely operate the bulk of the aircraft Lufthansa is eventually awarded, people familiar with the talks told Bloomberg earlier.

Air Berlin’s remaining short-haul aircraft are mostly A320-family jets, fitting both Eurowings’ and EasyJet’s fleets.

Air Berlin’s creditors met Thursday to review bids also from IAG and an alliance of Thomas Cook's Condor unit and former Formula 1 racing champion Niki Lauda. Air Berlin was forced into insolvency in August after main investor Etihad Airways pulled funding amid persistent losses.

Lufthansa plans to give about 3,000 of Air Berlin’s more than 8,000 employees a job, Spohr said Wednesday. Under German insolvency law, employment prospects for staff are among the key criteria. Even if Lufthansa fails to secure the Air Berlin assets, the company will still seek to expand, Spohr said.

“We believe Air Berlin will exit the market,” Spohr said. “That means we will be able to grow by another 20 to 40 aircraft. The next days will show if that will be organic growth or with a transaction involving Air Berlin.”

PREVIOUS | Air Berlin's insolvency could open the way for Lufthansa to add new inter-continental flights to the USA, with the German flag-carrier in talks about buying parts of its rival.

The deal could lead it to take about 75 planes, including 38 already flying on its behalf plus A330 wide-bodies and jets from Air Berlin’s Niki arm, people familiar with the plan said.

The ailing carrier’s Dusseldorf and Berlin bases would also provide Lufthansa’s Eurowings arm with a chance to expand a long-haul network currently limited to Cologne-Bonn airport and a fledgling operation in Munich.

At the same time, slots in Berlin used for short-haul services could help EasyJet narrow the gap to Ryanair in Europe’s biggest economy.

Air Berlin filed for insolvency Tuesday as lead investor Etihad Airways pulled the plug on funding the unprofitable carrier, which will rely on a federal loan to keep flying for the next three months.

Take the assets, leave the debt

A deal could be “very attractive” for Lufthansa if Germany’s biggest airline can acquire elements of Air Berlin, which has 8,600 workers, without taking on the smaller company’s debts or staff contracts, Sanford C. Bernstein & Co. analysts including Daniel Roeska said in a note.

They also said that there’s a solid “strategic rationale” behind a possible move from EasyJet, which has also expressed an interest, according to people with knowledge of the matter.

While the €150 million (US$175 million) loan should get Germans home from their summer vacations, Air Berlin will likely run out of cash at the end of the three-month period, setting a deadline for negotiations, Bernstein said.

Progress on a carve up of Air Berlin could be rapid, according to Roeska, with Lufthansa keen to bolster its defenses against low-cost carriers and the German government eager to protect jobs in an election year.

The alternative could make Germany “a clear target for imminent attack” by discounters, he said.

“If there is no deal, and Air Berlin collapses, Lufthansa will be facing a large capacity gap in the German market at precisely the time Ryanair is looking to make good on its ambitious expansion.

Many pieces in the puzzle

Lufthansa, which is unlikely to be able to buy all of Air Berlin for antitrust reasons, already has strong links to its one-time arch competitor following a deal to lease the 38 Airbus A320-series planes plus crews for six years.

Some 33 aircraft are slated for deployment with Eurowings, with 31 already there, and five for the group’s Austrian Airlines division. About 20 of the jets are, or will be, owned by Lufthansa under a sale-leaseback agreement.

At the same time, Air Berlin aimed to offload the Austrian Niki unit, which has 21 A321 jets, by combining it with 14 Boeing 737 aircraft leased from TUI AG. That proposal suffered a setback in June after terms couldn’t be agreed with Etihad, and Lufthansa is now also a candidate to take on the Niki fleet, according to the people with knowledge of its plans.

TUI said Tuesday it could still participate in Air Berlin’s restructuring. At the same time, the company is reluctant to take back the 737s, a person close to Europe’s largest tour operator said.

Thomas Cook Group's Condor arm, which books seats on Air Berlin flights, also said it could have a role in a rescue, though is considered less likely to play a major part.

Air Berlin’s Swiss Belair arm, which has seven A320-family planes, is set to shut down at the end of the summer, according to an announcement in March, while the company was due to take full control of regional affiliate LGW, with 20 Bombardier Q400 turboprops. The fate of an in-house maintenance arm is also unclear.

The restructuring steps were designed to trim the Air Berlin fleet to just 75 jets from almost 150, leaving it focused on inter-continental routes from Berlin and Dusseldorf, fed by shorter European flights, plus minor hubs in Munich and Stuttgart.

It currently serves about 20 long-haul cities with 17 Airbus A330 wide-body jets, with the focus on the U.S. and the Caribbean. The Dusseldorf operation, with 11 A330s, is most attractive to Lufthansa, one person said.

Airport slots may be attractive

As Air Berlin doesn’t own its aircraft, the main value for suitors may be in its landing rights, which are usually distributed by a national coordinator after airlines apply for them. German Economy Minister Brigitte Zypries, though, said slots may be sold off by the insolvency administrator to raise funds.

Lufthansa’s global strategy is increasingly built around beefing up Eurowings, initially created to defend its European turf against the likes of Ryanair by taking over short-haul routes outside of the main Frankfurt and Munich hubs.

While the unit has been swollen by the Air Berlin lease deal and the acquisition of Brussels Airlines, the transfer of existing short-haul routes from the parent airline has been slowed by union opposition, putting new emphasis on expanding long-haul services.

By the end of this year Eurowings will have more than 160 aircraft spread across 11 bases, including a fleet of A330s.

At the very least, Lufthansa is likely to want to safeguard the leased Air Berlin planes, which fly mainly on Mediterranean routes, according to Bernstein, and could use that structure to add more operations from the smaller carrier. Lufthansa, Air Berlin and TUI all declined to comment further on their plans.

Qantas - Qantas Frequent Flyer

31 Aug 2015

Total posts 123

Even if it buys parts of it, Lufthansa would become a near monopoly in the German market. Ryanair has filed a complaint agains the German gov't and Lufthansa. I think they are quite right. The gov't is keeping AB alive for Lufthansa to takeover a debt free airline as Lufthansa will now be helping AB restructure.

My experience in the German domestic market suggests that cheaper fares are desperately needed, specifically from Frankfurt.

Above all, Etihad now seems to have failed the vast majority of their investments abroad, with James Hogan taking the blame for it. I wonder if there are such plans for VA too.

Qantas - Qantas Frequent Flyer

06 Oct 2016

Total posts 162

Frankfurt is 3 times the price of Dusseldorf, Munich or (either) Berlin for Euro flights - just a pi$$ take

Air New Zealand - Airpoints

21 Jan 2016

Total posts 196

I don't see Etihad pulling out of VA. From Etihad point of view there is only 2 major Australian transcontinental and interstate air carriers, both with LCC subsidies which Eithad wants for their network, plus VA has 2 major Star Alliance partners feeding VA with customers. In essence VA is a safer investment than AB has been.

Does that mean the airline is about to disappear ? Or will it mean that it is still a one world airline after any sale or partial sale there of? 

Qantas - Qantas Frequent Flyer

08 Sep 2012

Total posts 241

Given that Air Berlin will likely be broken up, the Air Berlin brand will likely disappear with any sell off and oneworld will be one less member shortly. oneworld really does need an eastern European member badly.

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