• Deal could involve 40 Air Berlin aircraft complete with crews
  • Competition watchdogs’ concerns would need to be addressed

Deutsche Lufthansa AG is in talks to take over some of Air Berlin Plc’s flight connections, helping Germany’s largest carrier expand its low-cost unit while easing pressure on an ailing local rival.

Lufthansa is discussing operating about 40 Air Berlin planes, including crews, under its Eurowings discount brand, said people familiar with the situation who asked not to be identified as the talks are private. With Air Berlin facing a financial crunch, keeping jobs in Germany may ease concerns from competition authorities to any deal between the country’s two biggest airlines, the people said. 

Lufthansa and Air Berlin spokespeople declined to comment. Handelsblatt reported the news earlier.

“Air Berlin remains mired in a deep slump and could reorient itself” with such a deal, while Lufthansa’s Eurowings “could improve its market position,” Dirk Schlamp, an analyst at DZ Bank in Frankfurt, said in a note to clients. “Lufthansa should have a good negotiating position vis-a-vis Air Berlin.”

Even amid falling oil prices, Air Berlin has racked up 1.17 billion euros ($1.29 billion) in losses over the past three years, prompting several bailouts by dominant shareholder Etihad Airways. Focusing its remaining fleet, which currently totals 148 aircraft, on its Berlin and Dusseldorf hubs could help Chief Executive Officer Stefan Pichler reduce the route network to a more viable size. For Lufthansa CEO Carsten Spohr, a deal would bolster Eurowings as the unit competes with much larger rivals Ryanair Holdings Plc and EasyJet Plc.

Lufthansa last month underscored plans to increase capacity at Eurowings by at least 25 percent this year. That target was scaled back from a 43 percent growth plan laid out in early 2016. Eurowings is critical for Lufthansa, and Spohr has said he’s open to expansion options including using other carriers’ aircraft and staff, buying a stake in a partner and giving up full ownership via a merger.

Air Berlin shares surged as much as 30 percent to 74.9 euro cents and was up 24 percent at 12:47 p.m. in Frankfurt. The stock has dropped 38 percent over the past 12 months, valuing the company at 83.5 million euros. Lufthansa shares fell 0.8 percent.

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