Airlines swoop in on insolvent Air Berlin
A day after Air Berlin had announced it was seeking protection from its creditors, Lufthansa was the best-performing European stock, up 4.7 percent in morning trading, with budget rivals EasyJet and Ryanair hot on its heels. The jump in European airline stocks was prompted by a German government announcement, saying Lufthansa and another airline were in talks to take over some of Air Berlin's assets.
Lufthansa has made no secret of its interest in taking on more of Air Berlin's business while being mindful of the potential obstacles posed by debts and anti-trust issues. The German flagship carrier already has a close relationship with its former rival following an agreement last year to lease 40 Air Berlin aircraft and crew.
"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 operations that suit it best without buying the whole loss-making enterprise," said Jonathan Wober, analyst at CAPA-Centre for Aviation.
And Anand Date, analyst at Deutsche Bank, said in a note to investors that a combined Lufthansa-Air Berlin would have "strong positions" at several key airports, including Vienna, Düsseldorf and Zurich. "It's a very close statement between Lufthansa, Air Berlin and the German government, which suggests Lufthansa is in quite a good position with regards to what it wants to do with Air Berlin's assets," he added.
Air Berlin 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 insolvency comes with thousands of Germans enjoying summer holidays abroad on flights booked with the airline. Therefore, the German government has granted a bridging loan of 150 million euros ($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.
Berlin is expecting decisions to result from these negotiations in the coming weeks. German Transport Minister Alexander Dobrindt said he did not expect any deal to rescue Air Berlin as a complete airline.
"There is no transfer of Air Berlin as a whole… there are parts of the business that will go to Lufthansa and there are interested parties for other bits of the business, so we do not expect cartel difficulties," Dobrindt said
EasyJet, Europe's second biggest low-cost airline, is understood to be the second carrier in the race for Air Berlin assets, according to sources close to the talks.
"The goal has been to keep out Ryanair," one person familiar with the talks told the news agency Reuters. EasyJet would be keen to acquire slots to boost its small presence in Germany, where Lufthansa dominates. An EasyJet spokesman said the airline would not comment on speculation.
Ryanair sulking in the wings
Meanwhile, Europe's biggest low-cost airline, Ireland's Ryanair, is not believed to be seeking any part of Air Berlin. The airline even lodged a competition complaint on Tuesday with German authorities and the European Commission.
It claimed that there was an "obvious conspiracy" between the German government, Lufthansa and Air Berlin to carve up Air Berlin's assets, excluding competitors and ignoring EU competition and state aid rules.
"This is clearly being set up for Lufthansa to take over Air Berlin, which will be in breach of all known German and EU competition rules. Now even the German government is supporting this Lufthansa-led deal with 150 million euros of state aid. German customers and visitors will suffer higher air fares to pay for this Lufthansa monopoly."
But the German government justified its intervention on the grounds of Air Berlin's "ongoing and positive long-term discussion" with Lufthansa and another, unnamed airline "to continue operations under different ownership."
But Royal Bank of Scotland (RBS) analyst Damian Brewer believes that a Lufthansa takeover would indeed mainly be to thwart the likes of Ryanair. "For Lufthansa we see any moves as defensive - blocking other more competitive airlines from expanding. Air Berlin's Düsseldorf airport slots would likely be a valuable asset to Lufthansa while freezing new entrants out, unless the German authorities require slots to be surrendered to new entrants," he said in a note.
While the European Commission said it was in "constructive contact” with Germany over the issue, German services sector trade union Verdi has called for as many jobs as possible to be saved and for labor representatives to be involved in the talks. Air Berlin had about 8,500 employees at the end of last year.