Etihad expresses ‘disappointment’ as Air Berlin files for insolvency

The Abu Dhabi airline said it cannot offer any additional funding to the struggling German airline

August 15, 2017

Abu Dhabi airline Etihad Airways has expressed “disappointment” over Air Berlin’s decision to file for insolvency, it said on Tuesday.

The German airline said it would continue flying with the help of government loans, while Deutsche Lufthansa said it may buy parts of the airline.

“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,” Etihad said in a statement.

The Abu Dhabi airline acquired a 29.2 per cent in Air Berlin in 2011, and has since invested heavily in the struggling German airline.

“In April this year, Etihad provided EUR250m of additional funding to Air Berlin as well as supporting the airline to explore strategic options for the business,” it said.

“However, Air Berlin’s business has deteriorated at an unprecedented pace, preventing it from overcoming its significant challenges and from implementing alternative strategic solutions.”

Air Berlin has accumulated losses worth over EUR2.7bn in over six years and has a net debt of EUR1.2bn.

“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,” the statement added.

Etihad confirmed that it expects the German airline to continue operations during administration.

“We have a commercial relationship with Air Berlin across a range of areas, including codeshare operations, and we will support its management during these difficult times,” it said.

Saj Ahmad, chief analyst at StrategicAero Research, said that Air Berlin’s collapse underscores the “immense difficulties and challenges that Etihad endured in trying to get the airline to restructure, change and become a viable competitor to Lufthansa”.

“That Etihad has taken a massive financial hit in its earnings a few weeks ago highlights to good effect why they were not prepared to bail out the airline any more,” he said.

Last month, the carrier announced a net loss of $1.9bn for 2016, its first loss since Etihad started making money in 2011.

Etihad booked one-off impairments of $1.9bn that included $1.06bn on aircraft and $808m on “certain assets and financial exposures to equity partners, mainly related to Alitalia and Air Berlin,” it said.

“Coupled with the toxic situation at Alitalia and the sale of Darwin Airline, it looks like Etihad is re-evaluating its position and is probably better off concentrating on its own organic expansion as opposed to be side-tracked by equity stakes that have not delivered the rewards that had been envisioned,” said Ahmad.

Etihad is now restructuring operations, with its long-serving CEO James Hogan leaving the company on July 1.

Hogan spearheaded the airline’s strategy to buy minority stakes in other airlines across the world.

Abu Dhabi’s Etihad announces management restructuring

“The new leadership at Etihad, in my mind, has to wipe the slate clean from this sort of troublesome exposure and get back to showcasing Etihad’s premium offerings,” opined Ahmad.

“Etihad has spent too long trying to help others, it has lost ground and needs to recover that. It’s a bad day in the Etihad office, that’s for sure, but now that Etihad is arguably free from Air Berlin, it can get back to business as it looks to turn around its losses,” he added.

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