Etihad Bails Out Air Berlin Again With Convertible Bond

Etihad Airways PJSC will bail out Air Berlin Plc once more, tightening its hold by providing 300 million euros ($415 million) of funding after the cash-strapped German carrier was hit by falling traffic and ballooning losses.

Etihad will buy bonds convertible into stock which will have no maturity and count toward equity, according to a statement today, while Air Berlin will sell at least another 150 million euros in notes, providing 450 million euros in cash.

Since 2011, Etihad Chief Executive Officer James Hogan has taken stakes in carriers from Aer Lingus Group Plc to Virgin Australia Holdings Ltd., feeding more traffic via its Abu Dhabi hub. Etihad already owns 29 percent of Air Berlin, making it the No. 1 shareholder, and wouldn’t be able to convert all of the bonds without falling foul of a rule limiting non-European Union airlines to 49 percent holdings in the bloc’s carriers.

“We have to thoroughly evaluate our possible courses of action including our long-term business model,” Air Berlin CEO Wolfgang Prock-Schauer said in the release, adding that the company faces unspecified “fundamental restructuring.”

Air Berlin fell 5.9 percent to 1.65 euros in Frankfurt — 14 cents lower than the price specified in the convertible bond deal — erasing gains for the year and reducing its market value to 193 million euros.

Air Miles Deal

The company has already received funding from Etihad in the form of the Gulf carrier taking a 70 percent stake in its Topbonus air miles program, plus a credit line of $255 million now extended by five years, as well as the equity investment.

Air Berlin, which competes with discount operators led by Ryanair Holdings Plc as well as German No. 1 Deutsche Lufthansa AG, has accumulated more than $1 billion of losses in six years.
The carrier failed to break even and pare debt in 2013, with a dry European summer reducing demand for holiday flights and pushing it to a 239.1 million-euro operating loss after the Topbonus deal produced a 184.4 million-euro profit in 2012.

Sales dropped 3.7 percent to 4.15 billion euros, with the net loss amounting to 315.5 million euros. Air Berlin cut its fleet by 15 planes to 140 during the year, and said it plans to reduce the fleet size further through 2014.

‘No Taboos’

At the same time the carrier will lift capacity measured in available seat kilometers more than 4 percent by boosting long-haul scheduled and charter operations and flying more within Germany and to markets such as Spain, while seeking load factors at least 2.5 points higher than 2013’s 84.8 percent.

“Our business is not about shrinking,” Prock-Schauer said on a call with analysts, while adding: “There will be no taboos, we have to question everything we do.”

Air Berlin can choose whether it will pay the 8 percent interest on the bond sold to Etihad in cash or in kind, and Etihad’s stake in Air Berlin will remain unchanged at 29.21 percent, the No. 3 Gulf carrier said in a separate statement.

The German company delayed its annual earnings conference twice to provide more time to work on the financing package.

Air Berlin is “clearly in a very challenging position,” Hogan said in the statement. “However, we are confident the business is moving in the right direction, and can be turned around. Air Berlin has our full support in this process.”

Turnaround Chief

The European company also appointed Marco Ciomperlik, its head of maintenance, to the newly created position of chief restructuring officer to drive the turnaround process. The carrier cut about 600 jobs last year towards its goal of reducing headcount by 900 through the end of 2014.

European Union regulators said April 4 they were examining Etihad’s investment in Air Berlin, among others by non-EU carriers. European Commission spokesman Dale Kidd said today he expects Germany to forward relevant information by mid-May.

Germany’s Luftfahrt-Bundesamt federal aviation authority said Air Berlin supplied it with information yesterday, while declining to comment further for reasons of confidentiality.
Air Berlin will offer owners of 350 million euros worth of its bonds maturing this year and next an exchange for new ones maturing in 2019. The results of the exchange offers and bond sale will be announced May 9, it said.

Originally published on