Air Berlin Seeks Cheaper Financing as Etihad Supports

Air Berlin Plc, the German airline part owned by Persian Gulf carrier Etihad Airways PJSC, raised the volume of an existing bond to reduce interest costs ahead of a transaction that it says will improve earnings.

Air Berlin increased by 75 million euros ($102 million) the volume of its 150 million-euro bond issued April 19, 2011, which pays 8.25 percent interest and matures 2018, it said in a statement today. The new notes were sold in a private placement at 101.5 percent of their principal. The yield stood at 6.2 percent yesterday after spiraling to 15.8 percent at the end of 2011 amid concerns about the carrier’s ability to repay debt.

“Air Berlin is exploiting the currently favorable conditions on the capital market and the positive development of the bond,” said Air Berlin spokesman Mathias Radowski.

Financing concerns at Air Berlin, with negative equity of 6.1 million euros as of Sept. 30., have eased since Etihad increased its stake in the carrier in December 2011 to 29 percent and said it would lend the company $255 million. Chief Financial Officer Ulf Huettmeyer said on Nov. 14 that Air Berlin is working on a transaction that would yield a one-time positive contribution to cash flow and operating profit.

“We expect another hidden equity injection by Etihad, which could potentially buy Air Berlin’s maintenance unit, again for an excessive price as happened with Air Berlin’s loyalty program,” said Alexandre Daniel, a fixed-income analyst at Berenberg in Hamburg. “That would be Etihad bailing Air Berlin out for the third time.”

Loyalty Program

The Persian Gulf’s third-largest airline bought a stake in the German carrier’s customer loyalty program for 184.4 million euros a year ago, and Etihad Chief Executive Officer James Hogan on Jan. 13 said his investment in Air Berlin is long term.

The shares have gained 32 percent this month on speculation Etihad may provide additional funds. The gain is more than twice the 12 percent advance of the 15-member Bloomberg Industries EU Airlines Competitive Index. The stock was down 2.2 percent at 2.19 euros at 4:44 p.m. in Frankfurt.

Bloomberg collects recommendations by nine equity analysts covering the company. Eight advise clients to sell the shares.

“At a premium of almost 200 basis points over yesterday’s yield, the private placement is dear-bought,” said Berenberg’s Daniel. “We would imagine Etihad to subscribe to a major part of the placement.”

Quirin Bank AG acted as lead manager for the placement today.

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