After filing for insolvency this summer, Air Berlin (ETR: AB1) is finally being bought out by long-time rival Lufthansa (ETR: LHA) in what seems to be an ongoing trend of low-cost European carriers struggling to survive.
A spokesperson for Air Berlin stated that Lufthansa would proceed to acquire not only 81 of its 140 leased aircraft, but also obtain some of its other regional airlines like Niki Luftfahrt and Luftfahrtgesellschaft Walter for approximately $249 million. The acquisition would also entail Lufthansa absorbing 3000 of Air Berlin's 8000 employees, with all these costs amounting to a total investment of about 1.8 billion.
"We will see a milestone in the history of Lufthansa and Air Berlin today," said chief executive of Lufthansa Carsten Spohr.
Air Berlin was declared bankrupt a few months ago when it had reached the pinnacle of its consecutive losses and had consequently lost the support of its principal shareholder and creditor, Etihad (EEC: AB).
However, Lufthansa isn't the only big player with its eye on Air Berlin.
Air Berlin has also been in talks with UK-based EasyJet (LON: EZJ) since September, though nothing seems to have come of the discussions yet. Ryanair
"We will be referring the matter to the EU competition authority in due course," said a Ryanair spokesman.
If Ryanair's case is seen through by the EU competition authority, Lufthansa's 2.8% rise in share price leaving it at a 15-year high as well as its massive scope for future growth may just be short-lived.
This deal is very important for Lufthansa in order to alter its image from being a "high-cost", flagship luxury German carrier to a more affordable airline that can compete with carriers like EasyJet and Ryanair, which have all "taken large chunks of its share in short-haul routes within Europe." Moreover, considering that Lufthansa pilots have been disputing salaries and conditions for over a year, the airline really needs somewhat of an image boost to make up for lowered consumer confidence and be able to keep up with demands for higher pay.
As for Air Berlin, the airline knew it was in deep trouble the moment it went bankrupt and hence needed to somehow secure the futures of its employees in a sustainable fashion: the deal allows it to achieve this goal, with 80% of Air Berlin employees being either absorbed into Lufthansa or receiving job offers from companies such as chemicals company BASF, railroad operator Deutsche Bahn and online fashion retailer Zalando. This was made feasible by a job fair initiated by Air Berlin in partnership with a Berlin regional employment agency.
