Air Berlin

A Good Time to Go

30 Jahre AIR Berlin
Singing from the same hymn sheet? German Chancellor Angela Merkel with members of the Air Berlin board and staff. Source: Picture Alliance / Eventpress

The choice of words was strong, as is always the case with the Irish budget airline Ryanair. It said Air Berlin’s bankruptcy on Tuesday was “artificially induced,” implying that there was a conspiracy to enable Germany’s national flag carrier Lufthansa to take over its rival.

Angela Merkel’s government has stepped in with a €150 million taxpayer-funded bridging loan to shore up Germany’s second largest airline while its affairs are sorted out. In line with its strong words, Ryanair – a rival to both Air Berlin and Lufthansa in the German market – filed a complaint with European Union competition authorities against the bailout.

It seems unlikely that it will succeed, because it is clear that the Air Berlin insolvency is anything but artificially induced. In fact, it was overdue. The airline has been burdened by negative equity and overwhelming debt for years. Any other business would have filed for bankruptcy long ago. The carrier was only able to continue operating because major shareholder Etihad, the national airline of the United Arab Emirates, kept injecting more and more of the liquidity necessary to avoid insolvency. But it couldn’t work in the long term.

This near-perfect preparation for bankruptcy suggests that a consolidation had been planned and coordinated for a long time.

Still, there is a kernel of truth in Ryanair’s complaint. The insolvency may not have been artificially induced, but the timing was certainly chosen with skill.

Here’s why: It was clear that the final decision over Air Berlin had to be made this year, probably by no later than the fall. Etihad was obviously beginning to disengage. Its strategy of securing access to the important European market through investments in troubled airlines has failed miserably. Italian flag carrier Alitalia also recently became insolvent, for example. With even the deep-pocketed sheikhs behind Etihad terminating investments, it became clear there was a sense of urgency.

That fitted nicely with the political angle. Air Berlin plays an important role at Tegel airport in the German capital, and also happens to bear its name and employ about 8,000 people. This means that any decision about its future would have major political implications, and with national elections next month, these will now be sharply magnified.

So the only question is: Did it make more sense to reach a solution before or after the vote? At first glance, from a political point of view it seems strange that a major insolvency, such an unpopular topic in politics, should be addressed before the election unless it was absolutely necessary. The potential loss of jobs is obviously easier for a politician to handle after an election than when they are still fighting for votes.

But that means that for someone seeking political help, the period immediately before an election is the optimal time to deliver wish lists. And this is precisely what the parties involved in the Air Berlin case did, and they were able to do so because they have been preparing for the possibility of insolvency for months. There are now rescue scenarios, lawmakers are involved and feelers have even been sent out to the antitrust watchdogs to sound out a potential part-buyout by Lufthansa.

Of course, it is irritating that Etihad is pulling the plug now. It looks like yet another move in a big game of chess. But it is also clear that the situation at Air Berlin has come to a head, so no one should be surprised that the sheikhs have lost patience.

Still, the whole thing leaves a bad aftertaste. This near-perfect preparation for bankruptcy suggests that a consolidation had been planned and coordinated for a long time, one in which market leader Lufthansa would play the key role.

But there is also a certain irony to the fact that Ryanair is the one to cry foul. With its eyes on Alitalia, it doesn’t seem to have a problem with the Italian government temporarily supporting its flag carrier in insolvency.

And can Lufthansa CEO Carsten Spohr be faulted for seizing the opportunity to strengthen his company? Hardly. Ryanair boss Michael O’Leary does exactly the same thing, doing everything he can to increase profits.

We shouldn’t forget one thing in this debate: Lufthansa will not be the only one to profit from Air Berlin’s bankruptcy. The administrator will ensure that others also get a piece of the pie. In fact, it’s their duty to optimally liquidate the assets, for the benefit of the creditors and not in the interests of Lufthansa.

 

To contact the author: koenen@handelsblatt.com

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