Lufthansa snaps up parts of Air Berlin

The Globe and Mail (Ottawa/Quebec Edition) - - REPORT ON BUSINESS - MARIA SHEAHAN KLAUS LAUER

Ger­many’s largest air­line will ac­quire two of the failed car­rier’s brands and 20 ad­di­tional air­craft

Lufthansa re­in­forced its po­si­tion as Ger­many’s largest air­line on Thurs­day by sign­ing a $249-mil­lion (U.S.) deal to buy large parts of in­sol­vent Air Berlin.

Lufthansa plans to use the Air Berlin as­sets to ex­pand its Eurow­ings bud­get busi­ness. News of the deal pushed Lufthansa shares up more than 3 per cent to their high­est level in nearly 17 years.

Air Berlin, which has strug­gled to turn a profit over the past decade, filed for in­sol­vency on Aug. 15, and a gov­ern­ment loan has kept its planes aloft while its ad­min­is­tra­tor ne­go­ti­ated with prospec­tive buy­ers for parts of the busi­ness.

Lufthansa has agreed to ac­quire Air Berlin’s Aus­trian leisure travel air­line Niki, its LG Wal­ter re­gional air­line and 20 ad­di­tional air­craft, Air Berlin said in a state­ment.

“This con­tract pro­vides new op­por­tu­ni­ties for jobs for a large part of our work force. But we can only re­ally breathe again when the EU Com­mis­sion ap­proves the deal,” Air Berlin chief ex­ec­u­tive Thomas Winkel­mann said.

Lufthansa CEO Carsten Spohr said ear­lier he ex­pected the Euro­pean Union to ap­prove the trans­ac­tion by the end of 2017.

Talks to sell some of Air Berlin’s re­main­ing as­sets to Bri­tain’s easyJet and other bid­ders are con­tin­u­ing, Air Berlin said, with­out pro­vid­ing de­tails.

EasyJet, which has a base at Berlin’s Schoene­feld air­port, has been dis­cussing ac­quir­ing 27 to 30 planes. Air Berlin pre­vi­ously said oth­ers, such as Thomas Cook’s Con­dor, could pick up some parts of the busi­ness.

EasyJet de­clined to com­ment on the progress of talks on Thurs­day.

Mr. Spohr told a Ger­man pa­per ear­lier that his air­line would be in­vest­ing around €1.5-bil­lion ($2.2-bil­lion Cana­dian) in to­tal as a re­sult of the Air Berlin deal.

That sum in­cludes in­vest­ment in new planes, for which the board freed up €1-bil­lion of funds last month, the pur­chase price and the costs of tak­ing on new staff.

Air Berlin, Ger­many’s sec­ond­largest car­rier, will cease op­er­at­ing flights this month, cap­ping a tur­bu­lent sum­mer for Euro­pean car­ri­ers.

Italy’s na­tional air­line Al­i­talia is in ad­min­is­tra­tion and seek­ing in­vestors too, Bri­tish leisure air­line Monarch col­lapsed at the start of this month.

Mr. Spohr said on Thurs­day that while he was not in­ter­ested in the Ital­ian car­rier in its cur­rent shape, he would be in­ter­ested in talks to cre­ate a new Al­i­talia.

Shares in Lufthansa were up 3.3 per cent at €25.38 on Thurs­day, the top gainer in Ger­many’s DAX mar­ket in­dex.

An­a­lysts at Bern­stein Re­search raised their rat­ing on Lufthansa’s shares to “out­per­form” from “mar­ket-per­form,” say­ing they ex­pected a deal with Air Berlin to add around €70-mil­lion to €90mil­lion to an­nual op­er­at­ing prof­its at Lufthansa’s bud­get unit Eurow­ings in the medium term.

HSBC an­a­lysts lifted their tar­get share price to €29 from €25, cit­ing the im­mi­nent agree­ment with Air Berlin, a new mul­ti­year labour deal with pi­lots an­nounced this week and a pos­i­tive trad­ing per­for­mance this year.

MICHAEL SOHN/AP

An Air Berlin air­craft pre­pares for de­par­ture in Berlin on Thurs­day. Lufthansa has agreed to buy large parts of the bank­rupt car­rier as part of its ex­pan­sion plans for its Eurow­ings bud­get busi­ness.

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