Air Berlin filed for bankruptcy protection today after Etihad Airways pulled the plug on future funding. The German government quickly stepped in to provide a bridge loan so that Air Berlin can continue operations as it searches for a buyer. Is Air Berlin “too big to fail”?
Etihad has bailed out Air Berlin over and over. With the beleaguered Gulf carrier facing mounting losses of its own, it informed Air Berlin that it could no longer infuse cash into an airline that lost €782MN last year and has lost €293.3 this quarter alone.
But we are in the height of the summer travel season. Longhaul and shorthaul planes are booked full and stranding tens of thousands of passengers would cause gridlock and hasten liquidation. So the German government stepped in.
The Economy Ministry and Transport Ministry immediately announced in a joint statement to allay travelers’ fears that they could be stranded on summer holiday, saying the government would provide a loan of 150 million euros ($177 million) so the airline it can continue flights for the time being.
“We’re in a time when many tens of thousands of travelers and vacationers are in multiple international holiday spots,” the ministries said. “The return flights of these travelers back to Germany with Air Berlin would not have been otherwise possible.”
Note the implications of this statement–the German government bailed out Air Berlin so summer travelers would not be inconvenienced. Is that a valid reason to bail out a carrier who has been unable to earn money for several years?
Etihad Dismayed by Bankruptcy Filing
Etihad, which owns a 29.2% stake in Air Berlin, issued a statement expressing dismay over the bankruptcy filling:
We have been informed that airberlin has filed for administration.
This development is extremely disappointing for all parties, especially as Etihad has provided extensive support to airberlin for its previous liquidity challenges and restructuring efforts over the past six years.
In April this year, Etihad provided EUR 250 million of additional funding to airberlin as well as supporting the airline to explore strategic options for the business. However, airberlin’s business has deteriorated at an unprecedented pace, preventing it from overcoming its significant challenges and from implementing alternative strategic solutions.
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.
We expect airberlin operations to continue during administration. We have a commercial relationship with airberlin across a range of areas, including codeshare operations, and we will support airberlin’s management during these difficult times.
Germany is an important market for Etihad and Abu Dhabi, and we remain committed to providing comprehensive air links as a key enabler of trade and tourism.
Unfortunately, Etihad only has its incredibly foolish ex-CEO James Hogan to blame. Nevertheless, the letter underscores precisely why I question the bailout. Air Berlin’s financial health has “deteriorated at an unprecedented pace” and has struggled for six years.
The writing was on the wall..
Germany’s “Alitalia” is now being heavily courted by Lufthansa and EasyJet. We could see EasyJet or Eurowings take over shorthaul routes while Air Berlin remains a distinct longhaul brand as a Lufthansa subsidiary. Time will tell, but today’s bankruptcy filing comes as no surprise. What did surprise me is the German government’s immediate funding of a company that appears simply unable to operate without a constant flow of outside aid.
Will Delta now protest lost U.S. jobs because German subsidies have kept Air Berlin afloat and thereby “stolen” potential profit from Delta?
(H/T: View from the Wing)