Air Berlin files for insolvency after Etihad withdraws support
BERLIN: Air Berlin, Germany’s second-largest airline, filed for bankruptcy protection on Tuesday after key shareholder Etihad Airways withdrew funding following years of losses, leaving valuable runway slots up for grabs.
The move offers Lufthansa and rivals a chance to acquire slots at airports such as Berlin Tegel and Duesseldorf, with Germany’s largest airline keen to defend its domestic position against expansion by low-cost rival Ryanair.
Lufthansa confirmed it was in talks to take over parts of the business, while a source said easyJet was the second airline referred to by the government as being in talks with Air Berlin. The British budget carrier declined to comment.
The insolvency comes as thousands of Germans enjoy their summer holidays and just ahead of a September general election.
Berlin has granted a bridging loan of €150 million ($176 million) to allow Air Berlin to keep its planes in the air for three months and secure the jobs of its 7,200 workers in Germany while negotiations continue.
The government said it expected decisions from these negotiations in coming weeks.
Lufthansa has already leased Air Berlin planes to provide flights by its Eurowings budget airline and has made no secret of its interest in taking on more of Air Berlin’s business, although debts and anti-trust issues were potential obstacles.
“Lufthansa has played a canny waiting game over a number of years and is now well placed to cherry pick those parts of Air Berlin’s operation that suit it best without buying the whole lossmaking enterprise,” Jonathan Wober, analyst at CAPA-Center for Aviation, said.
Ryanair said Lufthansa was being set up to take over Air Berlin, which it said would breach competition laws. But German transport minister Alexander Dobrindt said he was confident there would be no anti-trust issues because the business would be sold off in bits.
Air Berlin, which became famous for its “Mallorca shuttle” services, piled up debt after a series of takeovers and bookings have been hit in recent months by concerns over its finances.
It made a net loss in almost every year since 2008 and in 2016 reported a record deficit of €782 million, equivalent to more than €2 million a day.
Funding from Etihad Airways, which bought into the airline in 2011, has helped to keep it afloat and the Abu Dhabi-based airline provided an additional €250 million in April.
But Etihad has been reviewing its European investments after they failed to bring in expected profits. Alitalia, another of Etihad’s investments, is also in administration and is seeking bidders.
Meanwhile talks between Etihad and TUI, Europe’s largest tour operator, about forming a joint venture holiday airline by merging TUIfly with Air Berlin’s leisure airline Niki collapsed earlier this year.
Shares in Air Berlin were down 32 percent at €0.53 by 2.18 p.m. GMT, valuing the airline at roughly €60 million. Ten years ago the carrier was worth around €1 billion.
Lufthansa shares were up 4.1 percent at €20.47.
Pilots’ union Vereinigung Cockpit (VC) blamed the shortcomings of past management at Air Berlin for its woes and expressed anger with Etihad. “It is a scandal that Etihad is dodging its responsibility and is leaving Air Berlin’s staff out in the cold,” VC President Ilja Schulz said in a statement. JUNE was a bad month for Qatar. It suffered a collapse in imports, soaring food inflation and tighter financial conditions in the first month of sanctions imposed by the Anti-Terror Quartet (ATQ) — Saudi Arabia, the UAE, Bahrain and Egypt — according to an authoritative new study of the country’s economy in the wake of the boycott.
Capital Economics, the London consultancy, has produced what it calls a “provisional judgment” of the hit to the country after the first sanctions were imposed at the beginning of June. It concluded that it was a “damaging blow” to its economy, with a 36 percent fall in imports, a dramatic rise in the cost of food, a fall in construction-sector activity and sharp tensions in the Qatari banking sector.
The sanctions did exactly what they were intended to do, by disrupting Qatari trade, affecting business confidence and shaking the financial system.
However, there is some evidence that the initial shock to the Qatari economy was sharp, but short. CapEcon, which has a track record of getting it right in regional economic analysis, said that most economic and trade indicators were better in July and the level of damage to the financial system “didn’t happen on anywhere near the same scale as during the global financial crisis.”
That is a small comfort for Doha, given that the world was on the brink of financial meltdown 10 years ago. It is also worth noting that the ATQ held off any major new sanctions last month, as tentative proposals to end the standoff were discussed amid growing international concern.
Even so, the damage was bad enough to force Qatar’s central bank to intervene, selling foreign reserves to prop up the riyal as the peg with the dollar came under pressure, and lending to the commercial banks to compensate for tighter liquidity in interbank markets.
Policymakers in Doha may be tempted to think that with measures like these they have weathered the storm and can continue to obfuscate on the basic issue of funding for terrorism, but they would be unwise to become too complacent. There are already signs that the ATQ still has plenty of ammunition if it wants to turn the screw harder, especially in the financial sector.
So far, the financial relationship between Qatar and the ATQ countries has been left relatively unaffected. While there were restrictions almost immediately imposed on land, sea and air travel and trade, banking links have so far been left untouched.
Qatari bank branches still operate in the ATQ countries, and vice versa. Customers have so far been free to carry on depositing or withdrawing funds and there has been no move to “freeze” accounts or order withdrawals on either side.
However, this must surely be under consideration. Bankers in Dubai, the biggest financial center in the Arabian Gulf, say that the UAE regulatory authorities are demanding that Qatar-affiliated financial institutions show weekly records of financial transactions, in what must be regarded as a preparatory move to stronger action.
The pressure is being applied via the international banking community too. Last week it emerged that three European banks with big Qatari investors — Barclays, Deutsche Bank and Credit Suisse — had been informally blacklisted from doing any work for big government-owned entities in the UAE capital Abu Dhabi.
At least three government-linked corporations — oil group ADNOC, Emirates Global Aluminium and diversified industrial conglomerate SENAAT — are considering stock market flotations that would normally attract those three European banks, among others hoping for a slice of the big fees that go with such transactions.
Instead, they have been quietly told not to bother to tender for the business, or were rejected virtually as soon as they did so.
The initial public offering (IPO) business in the UAE is big, but is modest compared to the huge sell-offs being planned in Saudi Arabia. There, in addition to the $100 billion IPO of Saudi Aramco being planned for next year, there is an officially estimated $200 billion worth of privatization work to be transacted over the next few years as part of the Vision 2030 transformation strategy.
None of the three banks on the UAE informal blacklist have been named among the team advising Aramco. Might they be frozen out of the even bigger privatization process? So far, I am assured by a senior banker involved in the process, that does not appear to be the case; it is still early days and very few of the planned sell-offs have got to the stage of formally announcing advisers.
But I would be very surprised if Barclays, Deutsche or Credit Suisse get any government-related advisory work in the Kingdom as long as the current standoff continues — or as long as they have Qatari investors.
So far, the Qatar economy appears to have ridden the early storm, damaged but not destroyed. But there remain many ways in which the ATQ can ratchet up the pressure.
Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai