A German district court prohibited Air Berlin and Etihad Airways to operate code-share flights between various German cities and Abu Dhabi. The ruling, which results in estimated annual revenue shortfalls of over €100 million, will primarily hurt ailing carrier Air Berlin. The ban starts on 16th January and encompasses 31 out of a total of 80 jointly managed flights.
Affected from the court’s ruling are code-shared services between Stuttgart and Abu Dhabi and Berlin Tegel and the UAE capital. Exempt are jointly offered nonstop flights between the Arabian
Emirates and Frankfurt, Munich, Dusseldorf and Hamburg. These routes are covered by the existing bilateral air traffic agreement, thus were not part of the legal proceedings.
Critical financial situation
In a statement, Air Berlin deplored the court’s decision, emphasizing that all announced AB-EY code-share flights will be performed until January 16, according to schedule. So no immediate disadvantages will arise for passengers or cargo clients, the carrier added.
However, in contrast to these soothing words Air Berlin’s financial situation remains vulnerable and highly fragile. This, despite the continuous allocations of funds in the hundreds of million euros by Etihad, Air Berlin’s minority shareholder (29.2%). Without these cash injections, the loss making German airline would have been long bankrupt. During the first three quarters in 2015, AB made a loss of €94 million.
Controversial standpoints on air traffic principles triggered the quarrel
The court’s ruling marks the current climax of a long-running political and legal dispute between the German government and their counterparts in the UAE. The main question in this regard is whether the massive expansion of the Gulf airlines in Germany is compatible with the bilateral air transport agreement. According to the German government’s interpretation it isn’t. They claim that Etihad and Emirates violate continuously the spirit of the treaty by pumping in traffic on a large scale that’s highly state subsidized thus distorting the market with a syphoning effect on passenger and cargo traffic. In contrast, the UAE maintains that their carrier’s operations to/from Germany are not foul play but purely based on commercial terms, hence not contradicting the air traffic agreement. Demands by Berlin’s government to renegotiate the contract, adding a paragraph on fair competition rules, including effective penalty mechanisms should any UAE or German airline infringe the legal framework, were indignantly rejected by the Abu Dhabi authorities.
Since neither side gave in, the German aviation authority finally decided that the code-shares at Stuttgart and Berlin Tegel that were granted to AB and EY only by a derogation up to now would have to stop in mid-January.
AB/EY’s legal defeat
The action against the authority’s imposed termination of the jointly operated services ultimately backfired on the claimants as the decision of the judges clearly demonstrates.
However, the last word is not spoken in this case because Air Berlin/Etihad lodged an appeal against the judgement before the High Administrative Court in Lower Saxony. In a statement, EY boss James Hogan warned the German government of a protectionist policy to the sole benefit of Lufthansa. This would negatively impact the investment climate, he indicated.
Uncertain fate of AB
However, should this judicial body confirm the decision taken by the district court the alliance Air Berlin-Etihad is at stake and the survival of the German carrier is doubtful. Etihad’s main interest to invest in Air Berlin was to enter the central European passenger and cargo market by establishing a dense feeder network to and from its main hub in Abu Dhabi based on code-share flights with partner airlines like Air Berlin. This strategy would be seriously jeopardized should German judges ultimately stop many of these jointly operated services. If so, also Air Berlin’s future is uncertain, Germany’s second largest carrier next to Lufthansa. Only one thing is certain: the tug-of-war on traffic rights between Berlin and Abu Dhabi will continue, with AB’s future remaining in the balance.