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Lufthansa eyes Air Berlin

May 5, 2017

Lufthansa CEO Carsten Spohr has said he held talks with the Abu Dhabi government about its stake in loss-making carrier Air Berlin. The debt of Germany's second largest airline was an obstacle for a takeover, he noted.

Lufthansa und Etihad kooperieren
Image: Getty Images/AFP/N. Balout

Speaking on the sidelines of Lufthansa's annual shareholders meeting (AGM) in Hamburg on Friday, Chief Executive Carsten Spohr said Abu Dhabi government officials were aware that Air Berlin's massive debt of around 1.2 billion euros ($1.3 billion) was "an obstacle" to a takeover bid from Lufthansa. 

Spohr traveled to the Gulf state earlier this week as part of a business delegation accompanying German Chancellor Angela Merkel. Abu Dhabi's state-owned carrier Etihad owns a 29-percent stake in Air Berlin and has already agreed a commercial partnership, including the lease of 38 Air Berlin planes and crews to Lufthansa.

"The debt problem can only be resolved by the government of Abu Dhabi," Spohr said, adding that his German rival's cost structure and anti-trust issues would also stand in the way of a possible takeover bid.

Elusive profit

Last week, struggling Air Berlin reported a fresh loss for the financial year 2016, as it takes the first steps in a far-reaching restructuring. Last year, the Berlin-based airline suffered a net loss of 782 million euros, up from 447 million euros in 2015.

Chief Executive Thomas Winkelmann described the result as "extremely unsatisfying," admitting that the "old Air Berlin" business model of "doing everything" didn't work.

Winkelmann hopes to reorient the firm and bring it back to profitability, and said he was "open to new partnerships and cooperations," including new investors. Last September, he presented a massive restructuring plan that included renting 38 aircraft with crew to Lufthansa and slashing 1,200 jobs, about one in seven of its workforce.

The group also split off its package holiday business, which especially serves popular beach destinations. The unit is to become part of a joint venture with Etihad as well as German tour operator Tui and Austria's Niki. Air Berlin itself will focus on high-end travel and long-haul services, promising more routes to the United States beginning in May.

Market consolidation welcome

A tie-up between the two German airlines will likely face only limited objection from rivals in view of overcapacity in the European aviation market.

Willie Walsh, head of British Airways owner IAG, told analysts in a conference call on Friday that he would "comment in a constructive way" toward anti-trust authorities, adding: "We won't try and create difficulties when it comes to consolidation, because we don't think that's a sensible thing to do."

Irish budget carrier Ryanair, however, seems more reluctant to agree to a takeover, after it has already raised objections to the Lufthansa and Air Berlin lease deal on fears it will hurt its own expansion in Germany.

Lufthansa investors, such as Union Investment fund, said an acquisition depended on the conditions. Ingo Speich, one of the fund's managers, argued that Lufthansa shouldn't make any acquisitions abroad, referring torecent rumors about a Lufthansa offer for struggling Italian airline Alitalia.

"Lufthansa hasn't got anything to give away and should instead put any additional capital in strengthening its balance sheet, restructuring the group and renewing the fleet," he told reporters at the Lufthansa AGM.

Etihad said this year it would review its European equity partnerships after losses racked up at not only Air Berlin, but also Alitalia, another key investment in its bid to expand its network.

uhe/kd (Reuters, AFP, dpa)