Air Berlin Files for Insolvency after Etihad Rebuff

Air Berlin filed for insolvency Tuesday after failing to convince its main minority shareholder, Etihad Airways, to keep the German airline afloat with further funding. Lufthansa Airlines said it has agreed to support restructuring efforts and Germany’s Federal Ministry of Economic Affairs and Energy has pledged a transitional loan of €150 million to allow operations to continue during administration proceedings.

“This development is extremely disappointing for all parties, especially as Etihad has provided extensive support to Air Berlin for its previous liquidity challenges and restructuring efforts over the past six years,” said Etihad in a statement.

This past April Etihad injected another €250 million into Air Berlin to support its most recent turnaround efforts. “However, Air Berlin’s business has deteriorated at an unprecedented pace, preventing it from overcoming its significant challenges and from implementing alternative strategic solutions,” said Etihad, which owns 29 percent of the German airline.

“Under these circumstances, as a minority shareholder, Etihad cannot offer funding that would further increase our financial exposure. We remain open to helping find a commercially viable solution for all parties.”

Etihad concluded that it remains committed to providing “comprehensive air links” to Germany, and that would continue to support Air Berlin’s management as a codeshare partner.

Meanwhile, Lufthansa said its support of the restructuring efforts will ensure that all aircraft operated by Air Berlin under a wet-lease agreement with Eurowings and Austrian Airlines will continue to operate normally. It added that it already has entered negotiations with Air Berlin to take over parts of the Air Berlin Group and is exploring the possibility of hiring more staff.

The announcements by Lufthansa and the German government drew a stern reaction from Irish low-fare carrier Ryanair, which immediately lodged competition complains with the German Budeskartellamt and the European Commission. Ryanair characterized the rescue efforts "an obvious conspiracy" between the German government, Lufthansa and Air Berlin to carve up Air Berlin's assets to the exclusion of major competitors in violation of EU competition and state aid rules.

"This manufactered insolvency is clearly being set up to allow Lufthansa to take over a debt-free Air Berlin, which will be in breach of all known German and EU competition laws," said Ryanair in a statement. "Now even the German government is supporting this Lufthansa-led monopoly with €150 million of state so that Lufthansa can acquire Air Berlin and drive domestic air fares in Germany even higher than they already are."