Air Berlin sell-off

A Done Deal?

Piloten-Streik bei der Lufthansa
Tails Lufthansa wins? Source: Picture Alliance / Federico Gamb

After the death, the carving up of the spoils.

Following a labored and bumpy descent, Air Berlin finally hit the ground last week. Germany’s second largest airline declared insolvency, and the vultures are now circling its carcass.

Former rivals may not have long to wait to pick over the bones. The high-profile carrier is under intense pressure to wind up its affairs and sell off its assets. Ticket sales immediately dried up after the insolvency announcement, and the airline is still burning through cash to keep its planes in the air, even though Germany’s employment agency is paying its 8,000 employees.

A government bailout of €150 million ($177 million) is expected to last only until the end of September. This is also the timeframe for the conclusion of sell-off negotiations called by CEO Thomas Winkelmann. A New York court’s decision on whether to extend creditor protection in the lucrative US market on September 18 is adding extra pressure.

Ryanair and EasyJet have one big advantage: They are not German airlines.

Many in the aviation sector predict a quick fix, with Lufthansa swooping down to claim the juiciest morsels. This is likely, with rivals including the Irish low-cost airline Ryanair accusing Lufthansa of having stitched up a deal with Air Berlin and the government long ago.

Germany’s largest airline has been allowed access to Air Berlin’s key data since early June, analyzing and evaluating its rival’s assets. On Wednesday, it became the first bidder to make a formal offer. Its focus is on Air Berlin’s Austrian subsidiary Niki, recently valued at around €600 million. Experts have already deemed this overpriced for its 30-odd aircraft fleet. Lufthansa also has its eye on Air Berlin’s 17 long-haul jets to strengthen its budget airline Eurowings, which already leases 30 Air Berlin aircraft.

Lufthansa’s biggest hurdle is the anti-competition watchdogs. If it was to consume the lion’s share of Air Berlin, it would hugely dominate the German market, as well as owning the flag-carriers of Austria, Belgium and Switzerland. Given the public debate over Air Berlin’s fate, and the concerns of unions over jobs, the cartel office will be watching closely.

Lufthansa received its first warning that the deal may not already be sealed last week. Following the first meeting of Air Berlin’s creditors’ committee, administrators Lucas Flöther and Frank Kebekus made it clear they are examining all offers, despite the time pressure. Numerous other bidders have emerged.

First up is British low-cost carrier EasyJet. It has reportedly been in contact with Air Berlin since last spring, giving it a good sense of the stricken airline’s worth. It also needs to grow in Europe because of potential post-Brexit restrictions on British airlines. Easyjet will be targeting landing rights as well as Air Berlin’s Airbus A320 family aircraft, the type it solely operates.

TUIfly, the airline of German holiday firm TUI, is also involved in discussions. It had leased 14 aircraft and 700 employees to Air Berlin, and is now worried that these may be viewed as a burden to other potential buyers. Currently, the aircraft are lodged with Niki, and Lufthansa would be unhappy about taking over their expensive staff. However, TUI and Lufthansa would both have an interest in getting more passengers onto Eurowings flights, so a deal could be made.

Global travel company Thomas Cook is another player. Its German airline Condor is run like a scheduled carrier, offering tickets on the free market rather than just for customers on a Thomas Cook holiday. This makes a bigger Eurowings, for example, a greater threat. Management is thought to have an eye on 10 Air Berlin aircraft, with a possible focus on long-haul jets. Condor’s chances of getting something are good thanks to its experienced boss Ralf Teckentrup.

Next up is airline founder Hans Rudolf Wöhrl. The billionaire, who founded an airline that was later bought by Air Berlin, is deeply opposed to a deal with Lufthansa because it will lead to a loss of competition. He wants to buy the entire airline and focus on tourist and domestic routes, and says he has already spoken with investors. Whether they will back him in time when the crunch comes is not known, however, and his chances seem slim.

Finally, there’s Ryanair. Its outspoken boss Michael O’Leary is livid at the thought of a Lufthansa stitch up, and has already lodged complaints with regulators. But his expression of interest in buying the whole of Air Berlin has raised accusations of a PR stunt. Mr. O’Leary has said in the past that he wouldn’t takeover Air Berlin even if it was free. It’s more likely that Ryanair is trying to secure landing rights.

However, Ryanair and EasyJet have one big advantage: They are not German airlines, and with the cartel office having the final say on any deal, that could count for a lot.

 

Jens Koenen leads Handelsblatt’s coverage of the aviation and space industry and writes about IT companies. To contact the author: koenen@handelsblatt.com

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