Airline Industry

Why losing the Air Berlin deal makes Lufthansa a winner

Aviation industry issues: A Lufthansa plane snubs a Niki plane at an Austrian airport. Source: DPA

Air Berlin’s Austrian subsidiary Niki filed for insolvency on Wednesday after German national carrier Lufthansa was forced to scrap plans to buy it. The failed deal will impact thousands of customers, affect at least 1,000 employees and is causing major political fallout. However there is one entity that probably won’t lose much from the thwarted deal.

“One shouldn’t say this too loudly,” a senior manager at Lufthansa, who wished to remain anonymous, told Handelsblatt, “but for us, this is anything but a negative development.”

Lufthansa’s move came after the European Commission said it would not allow the purchase due to competition concerns. Rivals including Irish budget airline, Ryanair, had warned that a takeover of Niki and of another Air Berlin unit, LGW, a Dortmund-based carrier, would make Lufthansa too dominant in Germany.

Lufthansa said it had made substantial concessions including forgoing flight slots, but that didn’t go far enough for the European Commissioner for Competition, Margrethe Vestager, who believed those concessions were not as extensive as the airline had claimed.

Unless another buyer comes along, Niki’s collapse may render 800,000 tickets null and void. Niki had issued them for the coming months in the firm belief that it would be acquired by Lufthansa.

Besides those customers, one of the biggest losers will be the German government, which gave the financially beleaguered Air Berlin a €150 million ($176 million) bridge loan in August in order to keep the airline flying during the holiday season. Without the proceeds from a sale of Niki, however, Air Berlin insolvency administrator Frank Kebekus won’t have the money to repay the German state.

German leader Angela Merkel had said that German taxpayers should not have to shoulder the burden of the airline’s insolvency. But after the failure of the Niki deal, government spokesperson Steffen Siebert conceded that the state will only get part of the loan back. The government, he added, will try and minimize losses to taxpayers.

“The lobbying for Lufthansa by Merkel, Dobrindt and company has ended with a crash landing.”

Katharina Dröge, spokesperson on competition issues for the Green Party.

A German government statement was unusually critical of the European Commission. “We regret the EU Commission’s decisions regarding Niki,” the statement said. “The German government had hoped for a solution mutually acceptable to both Lufthansa and the EU Commission.”

German opposition parties also had something to say about the issue. “The lobbying for Lufthansa by Merkel, [ex-transport minister] Dobrindt and others has ended with a crash landing, said Katharina Dröge, spokesperson on competition issues for the Green Party. “Niki staff have to worry about the loss of their jobs and customers have to worry about the loss of their tickets.” The Free Democrats complained that the government should have ruled out the bride loan for Air Berlin.

Industry sources said that Lufthansa appears to have underestimated the competition commissioner’s political ambitions. “Vestager wants to make an impression,” one source said. The 49-year-old Dane is said to be interested in succeeding Jean-Claude Juncker as president of the commission. She has powerful backers, including French President Emmanuel Macron, and could also be considering a political career in Denmark — possibly as prime minister.

“In previous transactions such as its takeovers of Swiss or AUA, Lufthansa was treated quite gently,” one airline industy manager suggested. “This time it was different.”

14 p15 Selling it for parts-01

Even though the deal has been blocked, Lufthansa may end up as the unexpected winner in this round of airline insolvencies. As Joachim Pfeiffer, economic policy spokesman for Ms. Merkel’s party’s parliamentary group, said: “I would question whether this [outcome] is better in terms of competition.”

Firstly, Lufthansa has already managed to secure a large portion of the 90 planes it wanted. The planes no longer belonged to Air Berlin and were owned by leasing companies; Lufthansa has struck new deals with those companies in recent weeks.

Secondly, the slots freed up by Niki’s insolvency will be redistributed according to a system set by the EU under which airlines that have strong positions at specific airports will get 50 percent of new slots in order to secure their market positions.

The remaining 50 percent will be allocated to other airlines, preferably those that haven’t flown from the airports before. Lufthansa will likely bid for the slots together with its other brands — AUA, Brussels and Swiss, among them — to secure further slots. Any rival will have to think carefully about going up against the Lufthansa group, so even without the Niki deal, Lufthansa will have strengthened its hold on the German market.

Thirdly, this result will all end up costing Lufthansa a lot less. It planned to pay a total of €230 million for the deal, of which insiders suggest around €200 million were for Niki.

And there’s another possible benefit. Lufthansa subsidiary Eurowings is growing but has been having problems finding new staff. The Niki insolvency will result in a group of out-of-work pilots in Austria. A new job with Eurowings Europe in Vienna might be a very good option for them, especially as that company pays better than Niki. Competition with those keen Niki fliers might also motivate Air Berlin pilots, who have been complaining about moving to Eurowings, to be more conciliatory toward their new employer.

At this point, it’s looking unlikely that Niki will find an alternative buyer. IAG, which owns British Airways and was one of the initial bidders in the first round following Air Berlin’s insolvency, has refused to make another offer, Air Berlin administrator, Mr. Kebekus, said. He also said that he doubted that talks with travel group Thomas Cook would produce an acceptable offer.

The Austrian government was trying to find a way to support Niki on Wednesday. “Talks about a solution are currently underway,” said Jörg Leichtfried, a spokesman for Austrian Transport Minister. The government, he added, is concerned that Niki will start to cancel flights to Vienna today.

Jens Koenen leads Handelsblatt’s coverage of the aviation and space industry, Till Hoppe is a Handelsblatt correspondent in Brussels, covering the European Union, Dana Heide is a Berlin-based correspondent for Handelsblatt and Hans-Peter Siebenhaar is based in Vienna. To contact the authors:,,,

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