Lufthansa In Negotiation With Etihad To Purchase Air Berlin Non-Hub Routes & 40 Aircraft

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Germany’s Lufthansa is in negotiations with Air Berlin majority shareholder Etihad to purchase 40 aircraft and all routes that don’t touch Air Berlin’s Duesseldorf and Tegel hubs according to Reuters.

Air Berlin A321Air Berlin has been bleeding cash ever since and even after Etihad purchased 29.21% of Air Berlin they constantly had to provide capital in one form or another to keep the airline afloat.

It appears that Etihad is now trying to slim down Air Berlin and cut their losses while getting rid of many non-essential routes the carrier operates. This includes first and foremost all routes that do not touch the Hub cities Duesseldorf and Berlin-Tegel.

Reuters (access here) reported about the confidential negotiations between Lufthansa and Etihad.

Germany’s biggest airline Lufthansa (LHAG.DE) is in talks to buy about a quarter of the planes owned by smaller peer Air Berlin (AB1.DE), three people familiar with the matter told Reuters.

Lufthansa is eyeing roughly 40 of Air Berlin’s 150 planes, including crews, the people said, adding the planes in question were not operating out of Air Berlin’s main hubs in Berlin and Duesseldorf.

Details of any deal still needed to be hammered out. “It’s not a deal that’s ready and on the table,” one of the people said.

Spokespeople for Lufthansa, Air Berlin and Etihad, Air Berlin’s largest shareholder, all declined to comment.

German daily Handelsblatt earlier reported that Lufthansa’s budget unit Eurowings was in talks to buy some of Air Berlin’s routes.

A deal would be a quick way for Lufthansa to expand the offering of Eurowings, which currently operates 90 planes, and also start a much-needed restructuring at loss-making Air Berlin, the people said.

Two of the people said, however, that a deal could run into regulatory opposition as it would further increase the market position of Lufthansa, already the market leader in Germany.

Air Berlin operates many touristic flights and flights to various European cities from secondary airports all over Germany including Frankfurt, Hamburg, Munich and Stuttgart. Longhaul flights are being operated out of their Hubs in Duesseldorf and Berlin-Tegel, including feeders to Abu Dhabi which was the primary motivation for Etihad to invest into the financially hurting carrier.

The proposed deal could indeed call anti-trust opposition to the scene as German and EU regulators have been watching strictly over the past year or two. Just recently a proposed acquisition deal between supermarket giants Tengelmann and Edeka was truck down by cartel watchdogs.

Lufthansa would have plenty to gain but probably even more to defend which is why they interested in this deal. If Air Berlin was to go bankrupt there is the strong possibility that Ryanair would quickly expand in the German market and ramp up competition against Lufthansa and their Eurowings Low Cost carrier. On the other hand Lufthansa faces a shortage of both pilots and crew. Acquiring those together with the aircraft would provide some relief in that regard.

Conclusion

Lufthansa bet a lot on the success of their Eurowings low cost carrier and this is an opportunity for them to weed out a good part of their competition. Just for this reason though I wouldn’t trust that such a deal would receive regulatory approval without strong modifications.

In any way one can imagine that Etihad isn’t willing to provide further capital just to be burned for the simple benefit of having two extra gateways to the German market. It’s time to trim down!

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