AirBerlin in administration

Eleanor Steed
By Eleanor Steed August 16, 2017 09:34

AirBerlin in administration

The second Etihad airline investment to go bust within the last six months is finally announced. Etihad sank a fortune into Air Berlin, far more cash than it ever spent trying to sort out Alitalia and Jet Airways combined, but to no avail. The only surprise in all of the Etihad investments so far is that the Middle East airline managed to turn Jet Airways around. The fact that the two big EU market foothold investments has failed is not a surprise to anyone. In April this year, Etihad sank €250m into Air Berlin. Now Etihad must sit back and watch as arch rival Lufthansa takes a front seat in carving-up Air Berlin at the table with the German government. Is this the end for Etihad’s hopes for a significant foothold within the EU? Will Etihad move to rebuild its network through strategic purchases after this?

As previously mentioned here from the outset, the only difference between the Swiss model and that of Etihad is that Swiss bought into airlines at the top of the market and Etihad bought in at the bottom. It took a global shock to send the mighty Swiss investments down the drain but it only took a little bit of competition to send the Etihad investments the same way. At this moment in time, it is hard to find anything good to say about the Etihad business model, save for the fact that the level of service on the Etihad aircraft and in the Etihad lounges is exceptional, and that, without government support or further investment, may now also be at risk.

It is hard to see how Etihad can take these financial hits to its core business model and at the same time lose a massive swathe of connectivity, while coping with falling passenger yields and with deliveries continuing unabated. One wonders how can the big three airlines continue without government assistance.

After Air Berlin finally bites the dust, the same question arises that followed the Alitalia bankruptcy: Will Etihad support investors (again) and confirm that they will underwrite all losses against EA Partners? The answer had better be yes.

Once again, the big winners are Lufthansa/Eurowings, Wizz, Ryanair and easyJet. Lufthansa is acting very quickly to move-in on the plumb routes that Air Berlin is vacating. Eurowings is becoming a serious competitor for Wizz, easyJet and Ryanair but its cost per passenger and turnaround times are nowhere near them – Lufthansa will need to counter this in time. AerCap is the lessor most exposed to AirBerlin’s fall, which has eight A330s and four A320 aircraft on lease, Air Lease has one A320 at risk, Aircastle has one A320, FLY has one A330 in Air Berlin also. With luck all aircraft are in a good condition. This means that unless Lufthansa is willing to take-on some of these leased aircraft, a glut of A320s will hit the market for sale and lease that will push rates back down once again. That said, given demand for both the A330 and A320 at the moment it is by no means the end of the world for anyone.

Eleanor Steed
By Eleanor Steed August 16, 2017 09:34