The Air Berlin-Lufthansa deal breaches EU competition laws and hurts Germans consumers
Andreas Hellmann // 1 September 2017
On 15 August, Air Berlin was forced to file for bankruptcy after the withdrawal of funding from Abu-Dhabi based Etihad Airways, which holds 29 percent stake in the German carrier.
Germany’s second-largest airline presented a frightening set of results over the last few years, reporting a wider-than-expected net loss of €782 million in 2016, up from €447 million in 2015, and has made a net loss in every year but one since 2008. There was no let-up in the first quarter of 2017, when the company’s net loss grew to €293.3 million from €182.3 million in the year-earlier period.
The impact of Air Berlin’s restructuring on its everyday operations has been clear, with flight cancellations, a shortage of planes and crews and a huge slowdown in ticket sales. With Etihad Airways not willing to spend more money on a clearly failing airline, there was no other option for the German airline but to go out of business. Competitors have already begun eyeing up at Air Berlin’s airport slots. According to the company’s website, the airline offers flights to 147 destinations worldwide and its German hubs are Düsseldorf Airport and Berlin Tegel Airport, the third and fourth largest airport in the country.
Potential buyers of Air Berlin have until 15 September to submit their offers. So far, only Lufthansa, Germany’s flag carrier and Europe’s largest airline, has expressed a real interest to take on a dozen of Air Berlin’s 17 long-haul aircrafts and their transatlantic routes. On 30 August, Ryanair has confirmed that it will not bid for the airline’s assets, whilst EasyJet has yet to make any official announcement.
To make things worse, the German government has already agreed a €150 million loan to make sure that flights continue for three months and to secure the positions of the airline’s 7,200 employees in Germany. This obviously raises important questions: Why has the government decided to step in with all this money? Why is it so important that Air Berlin keeps flying for at least three more months? The answer is simple. With the upcoming federal elections approaching (Germans will go to the polls on 24 September), Mrs Merkel is doing everything to avoid pictures of stranded families and other passengers that want to go on vacation or loud protests of former Air Berlin employees facing unemployment. In fact, the decision to give Air Berlin more credit has been made at the office of Mrs Merkel with none of the 16 German States invited to that meeting.
This move is set to create a big antitrust issue as Lufthansa is in the unique position of buying only the parts of Air Berlin that it actually needs. By doing so, Germany’s flag carriers will avoid the burden of taking over all Air Berlin’s employees, their claims and airport slots. Germany’s economy minister, Mrs Zypries, said that a deal whereby Lufthansa takes over parts of the insolvent airline should be struck in the next few months.
Following the German government’s decision to intervene, Ryanair, Europe’s biggest low-cost airline, complained that Air Berlin was being prepared for a Lufthansa takeover, which it said would breach German and EU competition laws. Under European Union rules it is illegal for EU countries to give financial help to some companies and not others in a way which would distort fair competition.
As Ryanair Chief Executive, Michael O’Leary, said “it is now vital that the European Commission takes immediate and decisive action to protect German consumers from a Lufthansa high fare monopoly”. In fact, it would be a huge mistake for Germany’s national competition regulator (the Bundeskartellamt) and European authorities to completely close their eyes over this hazy Air Berlin-Lufthansa deal.
EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).
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