Wednesday, 25 October 2017 09:46

Air Berlin Grounded By Insolvency

After Monarch went bankrupt and left thousands of passengers stranded, it looks like Air Berlin, the second largest German airline, looks likely to be the next carrier to close down operations.

While Air Berlin is fizzing out slowly, in contrast to Monarch’s overnight collapse, as many as 9,000 redundancies are expected once it finally winds up with many small and medium sized suppliers braced for significant losses.

There are parallels with Monarch in that Air Berlin has been in trouble for some time. The company lost money almost every year since 2008. It was propped up by multiple loans from Etihad since 2011, and the loss of that funding was the final nail in the coffin. After multiple cash injections, its lifeline ran out after a final payment from Etihad in April of this year.

Air Berlin halted all long-haul routes in mid-October, and is winding down in a more orderly fashion than Monarch, partly thanks to a €150 million loan from the German government. This loan simply bought time for the company’s assets were put up for a sale. No doubt unpaid business creditors of the now insolvent carrier are hoping this sale will raise the funds needed to meet some of the €1.2 billion of debt the company had been financing with the support of Etihad.

Air Berlin will officially cease operations on 28th October and in a worrying sign for creditors one of its planes has already been grounded in Keflavik for non-payment of fees. Analysts state they are expecting to see insolvency proceedings start before the end of 2017. Lufthansa is already in the process of buying at least 70 planes from the insolvent airline; more assets could be sold off to easyJet if negotiations are successful. This would hugely boost easyJet’s presence in the German aviation market.

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As European airlines brace themselves for the likely disruption of Brexit, it’s a concerning picture for airlines and their suppliers across the whole continent. Air Berlin and Monarch follow in the footsteps of Alitalia, which went bankrupt in May. Changing travel preferences are making some regular routes less popular, while buying fuel in dollars has hit the most vulnerable airlines in the pocket as the pound dips.

With Flybe recently filing its second profit warning in a row and losing around 20 per cent of its share value in response it looks like the market could face further disruption. Air Berlin may be the latest airline to file for insolvency, but it looks like it won’t be the last carrier to face challenging times ahead. All in all it paints a very worrying picture for companies and suppliers who benefit from the estimated €158.4 billion the sector brings to the European economy.

In a final swansong for the crumbling company, the last Air Berlin flight from Germany to the USA performed an impromptu fly-by around the control tower at Dusseldorf Airport to say “a dignified and emotional goodbye”. The pilot was promptly suspended.

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Image "D-ABNJ - Airbus A320-214 - Air Berlin" by flickr user Pascal Volk is licensed under CC BY 2.0

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