Etihad Airways Stands by Air Berlin as Losses Plunge to Record

(Bloomberg) -- Etihad Airways PJSC plans to stand by Air Berlin Plc even after its German partner reported soaring operating losses as a strategic overhaul struggled to gain traction.

Germany’s second-largest carrier is shedding tourism and point-to-point operations, shrinking its fleet by half to transform itself into a network airline. The process contributed to pushing the operating loss to 667 million euros ($739 million) last year, more than twice the 2015 level. This year hasn’t got off to a strong start, with the first-quarter loss widening 58 percent to 272 million euros, Air Berlin said in a statement.

Air Berlin’s mounting losses highlights the urgency for Etihad, which has backed several bailouts. The Abu Dhabi-based carrier also faces the collapse of Italian partner Alitalia SpA, leaving its strategy of building bridgeheads in Europe in tatters. Alitalia has informed Italian authorities that it plans to start the process of naming an administrator. A shareholders meeting is planned for May 2. 

Etihad, which owns 49 percent of Alitalia and just under 30 percent of Air Berlin, insisted that German airline was on the right track.

“We are seeing the first structural changes that are necessary to create a sustainable future for Air Berlin,” Etihad Chief Executive Officer James Hogan said in a statement, adding that the current strategy is “the right one.”

Air Berlin has supplied 35 aircraft and crew flying point-to-point routes to German rival Deutsche Lufthansa AG as part of a lease agreement that covers a total of 38 planes. An additional 35 airliners serving leisure routes were transferred to its Austrian Niki arm, which it is selling to Etihad to combine with TUI AG’s German aviation unit.

Still, questions remain whether the strategy will ultimately stabilize Air Berlin. Focus magazine reported Friday that Lufthansa CEO Carsten Spohr will travel to the Persian Gulf next week to discuss with Etihad how to finance a possible takeover of Air Berlin. The magazine didn’t say how it got the information. Lufthansa confirmed Spohr will be on a trip accompanying Chancellor Angela Merkel in the region, declining to comment further.

Air Berlin will publish its 2016 annual report on May 2 and release full first-quarter details by May 19.

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Chris Reiter, Tom Lavell