Air Berlin files for insolvency after Etihad withdraws support

An Air Berlin plane is pictured on the tarmac at the Tegel airport in Berlin on August 15, 2017. (AFP)
Updated 17 August 2017
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Air Berlin files for insolvency after Etihad withdraws support

BERLIN: Air Berlin, Germany’s second-largest airline, filed for bankruptcy protection on Tuesday after key shareholder Etihad Airways withdrew funding following years of losses, leaving valuable runway slots up for grabs.
The move offers Lufthansa and rivals a chance to acquire slots at airports such as Berlin Tegel and Duesseldorf, with Germany’s largest airline keen to defend its domestic position against expansion by low-cost rival Ryanair.
Lufthansa confirmed it was in talks to take over parts of the business, while a source said easyJet was the second airline referred to by the government as being in talks with Air Berlin. The British budget carrier declined to comment.
The insolvency comes as thousands of Germans enjoy their summer holidays and just ahead of a September general election.
Berlin has granted a bridging loan of €150 million ($176 million) to allow Air Berlin to keep its planes in the air for three months and secure the jobs of its 7,200 workers in Germany while negotiations continue.
The government said it expected decisions from these negotiations in coming weeks.
Lufthansa has already leased Air Berlin planes to provide flights by its Eurowings budget airline and has made no secret of its interest in taking on more of Air Berlin’s business, although debts and anti-trust issues were potential obstacles.
“Lufthansa has played a canny waiting game over a number of years and is now well placed to cherry pick those parts of Air Berlin’s operation that suit it best without buying the whole lossmaking enterprise,” Jonathan Wober, analyst at CAPA-Center for Aviation, said.
Ryanair said Lufthansa was being set up to take over Air Berlin, which it said would breach competition laws. But German transport minister Alexander Dobrindt said he was confident there would be no anti-trust issues because the business would be sold off in bits.
Air Berlin, which became famous for its “Mallorca shuttle” services, piled up debt after a series of takeovers and bookings have been hit in recent months by concerns over its finances.
It made a net loss in almost every year since 2008 and in 2016 reported a record deficit of €782 million, equivalent to more than €2 million a day.
Funding from Etihad Airways, which bought into the airline in 2011, has helped to keep it afloat and the Abu Dhabi-based airline provided an additional €250 million in April.
But Etihad has been reviewing its European investments after they failed to bring in expected profits. Alitalia, another of Etihad’s investments, is also in administration and is seeking bidders.
Meanwhile talks between Etihad and TUI, Europe’s largest tour operator, about forming a joint venture holiday airline by merging TUIfly with Air Berlin’s leisure airline Niki collapsed earlier this year.
Shares in Air Berlin were down 32 percent at €0.53 by 2.18 p.m. GMT, valuing the airline at roughly €60 million. Ten years ago the carrier was worth around €1 billion.
Lufthansa shares were up 4.1 percent at €20.47.
Pilots’ union Vereinigung Cockpit (VC) blamed the shortcomings of past management at Air Berlin for its woes and expressed anger with Etihad. “It is a scandal that Etihad is dodging its responsibility and is leaving Air Berlin’s staff out in the cold,” VC President Ilja Schulz said in a statement.


UAE regulators ask corporates to declare exposure to Abraaj

Updated 15 min 15 sec ago
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UAE regulators ask corporates to declare exposure to Abraaj

  • Air Arabia admits $336 million exposure to Abraaj funds.
  • Abraaj sells its Latam, Sub-Saharan Africa, North Africa and Turkey Funds to Colony Capital.

DUBAI: The United Arab Emirates’ top securities regulator has asked UAE-listed companies to declare their exposure to Dubai-based private equity firm Abraaj, which filed for provisional liquidation last week.
The Securities & Commodities Authority sent a letter earlier this week and companies had until Thursday to submit their responses, Obaid Al-Zaabi, chief executive of the regulator, told Reuters.
Air Arabia, a Dubai-listed low-cost carrier, said this week that it had a $336 million exposure to Abraaj, which is the Middle East’s biggest private equity firm. Shares in the airline plunged because of these links.
Al-Zaabi said some companies in the UAE had exposure to Abraaj, without naming them.
A court in the Cayman Islands, where Abraaj Holdings is registered, ordered this week that PwC be appointed as provisional liquidators of the company and Deloitte as liquidators of Abraaj Investment Management Ltd.
Abraaj said that the latest restructuring agreement has received in-principle regulatory approval and is expected to close upon approval from the Cayman Islands court and other customary consents.
On Thursday, the Dubai Financial Services Authority (DFSA), which is the regulator of the Dubai International Financial Center (DIFC), said it would discuss “various matters” with the liquidators and “will continue to work toward safeguarding the interests of investors.”
The DFSA is involved because Abraaj has an entity regulated in DIFC.
Abraaj Group agreed to sell its Latin America, Sub-Saharan Africa, North Africa and Turkey Funds management business to US investment management firm Colony Capital Inc, the companies said on Thursday.
The sale agreement comes after months of turmoil at Abraaj in the wake of its dispute with four of its investors, including the Bill & Melinda Gates Foundation and International Finance Corp. (IFC), over the use of their money in a $1 billion health care fund. The group has denied it misused the funds.
The sale is part of a provisional liquidation and restructuring as set out in a court order. Financial terms of the deal were not disclosed.
Colony Capital has also agreed to oversee, on an interim basis, other Abraaj group funds that are not being acquired so that the group and all its stakeholders have a “comprehensive global solution in place,” the companies said.
The other group funds include the $1 billion health care fund, and some legacy funds of the private equity group.
Sources told Reuters earlier that US buyout firm TPG was in talks with investors in Abraaj’s health care fund to take over management of the assets of the $1 billion fund.
The K-Electric asset, which is being sold in Pakistan and is owned by Abraaj Holdings, is also not part of the transaction.
Colony’s deal comes after other investors such as Cerberus Capital Management had also made offers for the Abraaj business before it filed for provisional liquidation in the Cayman Islands.
A unit of Abu Dhabi Financial Group earlier this week made a conditional offer to buy Abraaj’s management interest in all of its limited partnerships for $50 million, according to a document seen by Reuters.
Since Abraaj’s row with some investors became public early this year, it split its investment management business and holding company, while its founder Arif Naqvi stepped aside from the day-to-day running of its private equity fund unit and the firm halted its investment activities.
Tom Barrack, executive chairman of Colony Capital, said that he hoped that the transaction would enable the process of rebuilding on all sides and also bring an end to the speculation that has swirled around Abraaj over the past months.