TUI Said to Weigh Resurrecting Air Berlin Leisure Carrier

  • Combining Air Berlin’s Niki, TUIfly would help ailing owners
  • Deal may fail as TUI doesn’t want more German planes

TUI AG is considering resurrecting efforts to form a joint venture with Air Berlin Plc and Etihad Aviation Group by taking a bigger role in the endeavor than originally planned, according to people familiar with the situation.

TUI is studying whether to take a majority stake or even full ownership of the proposed leisure airline -- which was intended to combine assets from Air Berlin’s Niki and TUI’s TUIfly -- said the people, who asked not to be identified as the talks are private. However, TUI’s reluctance to add German capacity stands in the way of a deal, said one of the people.

The original project, which collapsed a month ago when Abu Dhabi-based Etihad pulled out, was aimed at letting German tour operator TUI revive its unprofitable TUIfly airline while allowing loss-burdened Air Berlin to offload its Niki leisure brand.

TUI and Etihad, Air Berlin’s biggest investor, would have each held about one-quarter of the venture, with just over 50 percent owned by the Niki Privatstiftung foundation in Austria. Combining TUIfly and Niki would have created a 60-plane fleet serving mainly Mediterranean and North African vacation destinations from Germany.

TUI is focusing on further improving efficiency at the airlines across its group, after reducing aircraft procurement costs and maintenance and ground operating expenses, TUI spokesman Kuzey Esener said, declining to comment further. The company said last month that it remains open to a partnership or joint venture that may help improve the competitive position of its German arm.

Representatives for Air Berlin and Etihad declined to comment.

Debt Pile

While TUI could buy Niki and is considering such a deal, that option isn’t likely because carving Niki out of Air Berlin would be costly and time-consuming, one of the people said. Plus, TUI wants to reduce its German airline capacity amid a glut of seats.

That said, it’s in TUI’s interest to ensure Air Berlin’s survival because if that carrier fails, TUIfly would have to take back the 14 aircraft and crews it is leasing to its partner, once again setting back its streamlining efforts.

All parties involved are under pressure. Air Berlin has posted seven annual losses in the past eight years, and the TUIfly-Niki venture was part of a strategy to narrow its focus to its scheduled flight network while jettisoning point-to-point and leisure operations. Etihad is trying to untangle itself from a flailing German venture at a time when its mainline faces a tough market and its investment in Alitalia SpA unravels.

Getting Germany’s biggest carrier Deutsche Lufthansa AG involved in rescuing Air Berlin is also an option. Lufthansa Chief Executive Officer Carsten Spohr has said repeatedly that taking more of Air Berlin’s aircraft beyond the 38 it currently leases is a possibility, provided the Berlin-based competitor cuts costs, antitrust regulators don’t block such a deal and Etihad finds a solution for the carrier’s 1.12 billion-euro ($1.3 billion) debt pile.

Lufthansa’s involvement would be the preferred path of the German government, which is skeptical that Etihad will continue to bail out Air Berlin for much longer, meaning that 8,600 jobs -- mostly in Germany’s capital -- are at risk.

Authorities have been reluctant to help out with cash or debt guarantees and expect Etihad to pick up the tab, according to a person familiar with the talks. Air Berlin put a preliminary request to the German government for state aid in early June, only to withdraw it two weeks later.

Etihad already paid Air Berlin 300 million euros to gain control of Niki for the shift into the venture, but ownership so far has not transferred.

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