German low-cost carrier Air Berlin has been thrown a financial life-line in the form of a 30% outright purchase of its shares plus a debt-financing agreement from the Abu Dhabi state-controlled airline Etihad Airways.
In the announced ‘strategic partnership’ Air Berlin will enter into a code-sharing agreement with Etihad Airways that will see Etihad become Air Berlin’s largest shareholder and thus gain access to new European routes.
Just as Air Berlin has to struggle daily with its low-cost competitors in Europe like EasyJet and Ryan Air, Etihad Airways is trying to keep pace with its larger Gulf-based rival ‘Emirates’ – the 800 pound gorilla of the middle eastern airlines.
Etihad will reportedly pay circa 73 million Euro to increase its present ownership from 3% to 30% and has agreed to sit on its shares for at least 2 years without selling them and has also agreed not attempt to increase its stake in the company during that time.
This was agreed to in order to avoid any fears of other share-holders of a possible hostile take-over bid within this time frame.
Air Berlin has reported significant narrowed margins up to the end of its 3rd quarter this year. The decrease in incomes this year was caused in part by an increase in number of seats offered and a corresponding fall in demand, along with increased fuels costs and Germany’s aviation tax which was introduced in January of this year.
Air Berlin sees no operating profit for the year ending 2011 and because of a worsening global financial outlook it is not even sure of whether or not it will break even next year 2012.
The company has begun to jettison almost 200 million Euro worth of operating costs which will entail reducing capacity and has moved forward delivery times for its new airplane orders.
The agreement between the two airlines will provide Etihad access to Air Berlin’s European short haul network, along with in instant in to Berlin and its new airport opening in June.
See related article about Berlin’s new airport BBI –
Berlin, the German capital and the centre of a tourist boom over the last years, and access to it will greatly assist Etihad and will not be welcomed by Lufthansa, the German flag carrier. [see related story of how Luthansa is planing to add capacity in Berlin in 2012 – ]
Lufthansa and other legacy carriers in Europe are fighting to reduce their costs just to maintain their own national market share and feel that Middle Eastern rivals provide unfair competition through subsidized assistance.
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