Air Berlin Flies into the Unknown while SN Becomes Full Member of the LH Group

Berlin's notoriously loss-making airline plans to halve its fleet and axe up to 1,200 jobs out of a total of 8,000 in an effort to secure its survival. Savior could be archrival Lufthansa that intends leasing 40 of Air Berlin’s aircraft together with their crews and integrate them into their low cost daughter Eurowings. Yesterday (28 Sep), Lufthansa’s Supervisory Board has rubber-stamped the deal at their gathering.

As first result of their meeting, the LH watchdogs have approved the full acquisition of Brussels Airlines.

Still rivals – soon partners  -  source: Munich Airport
Still rivals – soon partners - source: Munich Airport

´Quo vadis Air Berlin? That’s the one billion euro question hotly discussed among German and European aviation experts. According to a decision taken by the management, the carrier will withdraw from all routes operated outside their two central hubs, Berlin and Duesseldorf. Flights between Munich and London Heathrow or Hamburg and Helsinki, for instance, will be scrapped from AB’s schedule together with many other connections. By transferring dozens of aircraft and their crews to Lufthansa/Eurowings, Air Berlin instantly gets rid of a proven loss-maker.

Long way to go
Aviation experts doubt, however, if this radical downsizing of capacity, the cutting of jobs and the concentration on hub operations will suffice to bring Air Berlin back into the black.
A key question is what will happen to the remaining AB fleet of 75 leased jetliners? They will keep on serving intra-European routes and operate intercontinental flights, but limited to AB’s two gateways Berlin TXL and DUS respectively.
The latter doing is of key interest for Etihad for steadily feeding passengers and air freight into the Gulf carrier’s Abu Dhabi hub. This feeding function was the primary objective for Etihad’s move to buy into Air Berlin five years ago. Meanwhile, the Gulf airline holds 29.2 percent of AB’s equity stake.

 

Leisure Cargo’s business remains widely unaffected
It seems that most transcontinental services will remain unaffected by the announced restructuring program. An important aspect particularly for AB’s air freight daughter Leisure Cargo that markets the carrier’s lower deck capacity on a number of intercontinental key routes.  
From all what’s known at this point it can be assumed that it was Etihad that engineered the Lufthansa deal, after getting tired of pumping huge amounts of money year after year into the ailing Berlin carrier since first buying into it back in 2011. To end the constant flow of emergency aid once and for good, Etihad’s strategists figured out it would be best to get rid of most loss-making short and medium-haul routes that are not directly linked to any of AB's intercontinental services.

Brussels Airlines will become a full-fledged member of Lufthansa  -  Picture: SN
Brussels Airlines will become a full-fledged member of Lufthansa - Picture: SN

Win-win situation
And Lufthansa? They will give their low cost daughter Eurowings a major push by instantly adding 40 aircraft to the fleet, paying Air Berlin a monthly utilization fee until 2023, starting March 26, 2017. However, it is an open issue if Eurowings will service all affected AB routes themselves, once the fleet swop is completed. It can’t be excluded that some of the heavy loss makers could go down the tube completely.
In summary, there are two basic aspect that speak in favor of the yesterday concluded LH/EY/AB deal: Lufthansa’s LCC unit Eurowings can widen their reach considerably at one go by simultaneously blocking the fast network expansion of rivals Easyjet and Ryanair that otherwise would capitalize on the downsizing of AB’s fleet. Instead, Eurowings will fly their flag on these sectors at the beginning of next year's summer flight plan (March 26, 2017).
Secondly, Etihad intends code sharing with Lufthansa on a number of flights. This aspect is part of the entire package negotiated between the parties involved in recent months. If so, details have not been revealed to this hour, it would be the first time the German carrier signs a cooperation agreement with one of the massively state-aided Gulf airlines.
So please stay tuned.

 

LH acquires SN
As widely expected, Lufthansa’s Supervisors today have approved the full takeover of Brussels Airlines by exercising a call option to acquire the remaining 55 per cent of shares in SN Airholding, the parent company of Brussels Airlines. In an announcement, LH points out that the decision is still subject to approval by the competition commission. If they okay the deal, which is widely expected, the transaction will be concluded at the beginning of 2017.

The amount to be paid by LH to the group of current SN stakeholders was not revealed.
Neither does today's release contain any information which specific role the Belgian carrier will play within the LH Group of airlines. However, it is widely rumoured that Brussels Airlines’ European services will become part of Lufthansa’s low-cost spin-off Eurowings.
Time will tell.
 
Heiner Siegmund

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