Air Berlin Plans Lease Deal Geared To Reducing Debt

By Jens Flottau
Source: Aviation Week & Space Technology

Last year, Turkish Airlines was close to buying a stake in LOT, but backed out at the last minute.

Complicating the matter is the government's recent support for LOT. The airline received a €100 million short-term bailout package from the Polish treasury late last year to avoid bankruptcy. This has since been approved by the European Commission. LOT asked for another €88 million in June, with the conditional support of Poland's new finance minister, Wlodzimierz Karpinski, who also said “this is the last attempt to rescue LOT.” Approval of the second bailout is still pending.

However, an Etihad investment in the airline could actually make that approval easier because the Polish government could argue they needed the investment to prepare LOT for the sale, and acted as a private investor would under normal market conditions. The European Commission generally does not consider such an investment as state aid.

Meanwhile, Air Berlin is still in deep-restructuring mode, 18 months after Etihad rescued it from what looked like imminent demise. However, its equity remained a negative €116 million at the end of June. Air Berlin is trying to address this problem by selling off more assets and has signed a letter of intent with Minsheng Commercial Aviation, a new Chinese lessor, for a sale-and-leaseback deal for a mix of up to 11 Boeing 737s and Airbus A320s. It hopes this deal will reduce its net debt from €706 million to €540 million, although it will also increase future lease payments. Of Air Berlin's current fleet of 147 aircraft, only 28 are owned; that number would go down to 17.

According to CEO Wolfgang Prock-Schauer, Air Berlin also will not rule out further capital measures once the airline's Turbine restructuring program shows results. Etihad would have to participate as the largest shareholder and pump in even more money if it does not want to see its stake diluted.

Turbine aims at cutting €200 million in costs this year, and Prock-Schauer says that target is likely to be achieved. Substantial improvements are expected from the third quarter onward. However, with slower-than- expected bookings in July and August because of unusually good weather in Europe this summer, Prock-Schauer cautions that it will be more challenging to reach a breakeven result on the operating profit level for the full year.

Separately, Etihad has confirmed plans to buy a 49% stake in Serbian national carrier, Jat Airways: the airline will be rebranded Air Serbia. As part of the agreement, Etihad plans to inject a total of $100 million to recapitalize Air Serbia. The Serbian government will match that investment.

Following the expected regulatory approval, Etihad plans to convert a $40 million loan into equity on January 1, 2014, giving it 49% of Air Serbia. While the Serbian government will continue to own a majority stake, the airline will be run under a five-year management contract given to Etihad, which plans sweeping changes to the company's structure and network.


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