Air Berlin's State Rescue Sparks Turbulence

At least the lines might be shorter. Picture source: Reuters

With the holiday season at its height and the general election just five weeks away, Chancellor Angela Merkel could not have afforded to let the country’s second-largest airline collapse.

“80,000 stranded holidaymakers, that’s almost 80,000 voters. The political calculation is that simple,” said one official in Berlin.

But the government’s decision on Tuesday to grant a bridging loan of 150 million (€177 million) has caused controversy. The aim of the loan is to keep Air Berlin, which on Tuesday filed for bankruptcy protection after its biggest shareholder Etihad refused to make further funds available, operational for three months pending talks to sell it.

Ms. Merkel tried to limit the political fallout on Wednesday. Asked in a YouTube interview how big the risk was that taxpayers would pay for a rescue, Ms. Merkel said: “That is quite low, otherwise we would not have been allowed to grant this bridge loan … We can say that in all likelihood the taxpayer will not have to pay for that.”

“Air Berlin isn’t a systemically relevant company. I ask myself why the government has gotten involved.”

Dieter Janecek, Green Party, economic policy spokesman

But even members of her own party doubt that. “We’re never going to see those €150 million again,” said Michael Fuchs, economic policy spokesman for Ms. Merkel’s conservatives.

In the first quarter, Air Berlin lost €23.5 million a month. Analysts expect even bigger losses in the second quarter which was beset by delays and cancellations as the airline’s troubles deepened. The second-quarter results haven’t been published yet.

Economics Minister Brigitte Zypries and Transport Minister Alexander Dobrindt are pinning their hopes for a repayment of the loan on the sale of its attractive take-off and landing slots in Germany.

The problem is that Air Berlin’s management recently revised down the value of those slots to €80 million from €176 million.

Opposition politicians have scented blood. “Economics Minister Brigitte Zypries has failed on all levels,” said Michael Theurer of the pro-business Free Democratic Party.

Dieter Janecek, economic policy spokesman of the Greens, said: “Air Berlin isn’t a systemically relevant company. I ask myself why the government has gotten involved.”

National carrier Lufthansa is likely to clinch many of those prized slots because its long-running presence at the airports affected will make it eligible for preferential treatment in their allocation. Such a deal, however, might be subject to strict conditions to prevent Lufthansa from gaining a dominant position at these airports, the head of Germany’s antitrust watchdog, Achim Wambach, told newspaper Rheinische Post.

16 p04 Air Berlin Announces Bankruptcy-01

Transport Minister Alexander Dobrindt said antitrust issues should not be narrowed down to market positions in individual, regional airports.

“We need a German champion in international air travel,” Mr. Dobrindt was quoted as saying by Rheinische Post on Thursday. “Therefore it is of the utmost importance that Lufthansa is able to buy substantial parts of Air Berlin.”

There’s an alternative scenario in which Lufthansa would obtain the slots by acquiring parts of the airline. Air Berlin already flies 38 planes for Lufthansa and that business has been placed in a separate company, Air Berlin Aeronautics GmbH, to shield it from an insolvency. In theory, Lufthansa could place other parts of Air Berlin that it’s interested in, such as its long-haul jets, into that company and then wholly acquire it. Or it could buy the individual planes and their crews one by one.

Lufthansa is interested in taking over up to 90 of Air Berlin’s 140 air planes, including the 38 it is already leasing from the insolvent carrier, and all 20 planes of its subsidiary Niki, newspaper Süddeutsche Zeitung reported, citing company sources. A deal could be concluded as early as next week. But a bidding war over Niki could break out, as British rival Easyjet is also interested, the paper wrote.

In addition to Lufthansa, two other carriers are interested in buying parts of Air Berlin, the insolvent firm’s Chief Executive Thomas Winkelmann told newspaper Frankfurter Allgemeine. Travel agency Thomas Cook and its airline subsidiary Condor have expressed interest in Air Berlin’s operations, while insiders told news agency Reuters that Easyjet was also among the parties eyeing assets.

Irish budget rival Ryanair has lodged a complaint with the German antitrust regulator, the Bundeskartellamt, and the European Commission, accusing the German government of providing “unlawful state aid” and of conspiring with Lufthansa to carve up Air Berlin.

“There’s nobody out there at the moment speaking for German consumers or for visitors to Germany who will be paying much higher air fares.”

Michael O’Leary, CEO Ryanair

In an interview with Handelsblatt, Ryanair Chief Executive Michael OLeary said the government was providing the loan so that Lufthansa can take over Air Berlin.

“This will involve the number one airline in Germany taking over the number two airline in Germany, eliminating almost all competition on German domestic routes so that Lufthansa can increase air fares even higher and penalize German consumers even more,” Mr. O’Leary said.

“And there’s nobody out there at the moment speaking for German consumers or for visitors to Germany who will be paying much higher air fares. If Lufthansa wants to acquire Air Berlin, why didn’t Lufthansa lend Air Berlin €150 million? They’re going to break almost every known German and EU competition rule on the basis of ‘Air Berlin is in financial difficulty and we’ve got to protect German passengers.’ It shows yet again that there’s one rule for the Germans and a different rule for everybody else.”

He added that Ryanair and other airlines would be interested in buying parts of Air Berlin if it went through a “normal and fair” liquidation process.

The German government said its support for Air Berlin did not breach antitrust rules. And a spokeswoman for the EU Commission said she was “confident that solutions can be found in keeping with EU law.” She said complaints such as the one lodged by Ryanair would not delay the process.

This isn’t, of course, the first time that the German government has intervened to shore up a struggling company. In 1999, then-Chancellor Gerhard Schröder boosted his failing approval ratings by arranging a state loan to save construction group Holzmann. The company went bust before the loan was paid out, however.

In 2002, cellphone company Mobilcom came knocking and got €50 million in assistance from state-owned development bank KfW, €270 million less than it had requested.

In the financial crisis, Germany used KfW to make €40 billion available for firms that were healthy but couldn’t get credit. Only a fraction of that money was every used.

Air Berlin’s staff, meanwhile, will be watching developments even more anxiously than holidaymakers. Flight crews have the best chance of keeping their jobs, but they will face salary cuts because Lufthansa will likely employ them under the contract of its budget unit Eurowings which pays less than Air Berlin.

But the future looks gloomy for Air Berlin’s ground staff such as maintenance crews and administrative employees.


Several Handelsblatt correspondents contributed to this report. To contact the editor:

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