Lufthansa to swallow lion's share of Air Berlin

Daphne ROUSSEAU with Tom BARFIELD in Frankfurt

Years of struggle for Germany's second-ranked airline Air Berlin (LSE: 0GPE.L - news) appeared on their final stretch Thursday, as airborne behemoth Lufthansa (Xetra: LHAB.DE - news) announced plans to buy more than half the bankrupt carrier's planes.

The deal has sparked controversy in the European aviation sector, with the German government facing accusations it helped steer the process under a plan to build the Frankfurt-based carrier into an all-conquering juggernaut.

Lufthansa will take over Air Berlin's Austrian subsidiary Niki, German subsidiary LGW and 20 further aircraft, guaranteeing all jobs at the two smaller firms, Air Berlin said in a statement.

The deal includes 81 of Air Berlin's 144 aircraft and 3,000 of its 8,500 staff, Lufthansa chief executive Carsten Spohr said in Berlin, hailing it as a "great day" for his company.

Meanwhile, negotiations with Easyjet (Hamburg: 14862522.HM - news) -- the other bidder chosen for exclusive takeover talks -- "are continuing", Air Berlin said, offering no information about what the British firm hopes to buy or whether any Air Berlin staff will keep their jobs.

Spohr has suggested Easyjet (Frankfurt: A1JTC1 - news) is interested in up to 30 aircraft.

Lufthansa has yet to say how much it will pay under the deal, but Spohr told newspaper Rheinische Post Thursday that the group would invest 1.5 billion euros ($1.8 billion) in its low-cost subsidiary Eurowings following the takeover.

He added that 80 planes was the largest addition to Lufthansa's fleet that competition authorities would accept.

"The European Commission will look very closely at this. We will support them," Andreas Mundt, head of Germany's federal competition authority, posted on Twitter (Frankfurt: A1W6XZ - news) .

"We will only be able to breathe when the Commission has finally confirmed the transaction," Air Berlin boss Thomas Winkelmann said in the company's statement.

Many internal German routes will in future only offer a choice between Lufthansa and Eurowings.

But Spohr told business daily Handelsblatt Thursday that "we expect the competition authorities to examine the takeover at least from the point of view of European competition, not limit it to the German market alone."

While the authorities investigate, Air Berlin will operate flights as a subcontractor, as insolvency rules forbid it from flying on its own account after October 28.

- 'Stitch-up' -

Air Berlin triggered bankruptcy proceedings in August after losing a cash lifeline from its biggest shareholder Etihad Airways.

Its aircraft have been kept aloft by a 150-million-euro ($178 million) emergency loan from the German government while details of the breakup were worked out.

German and international investors and competitors lined up, with an eye not only on Air Berlin's aircraft but also coveted takeoff and landing slots at crowded airports.

In the race for exclusive talks, Lufthansa and Easyjet reportedly beat out IAG -- owner of Iberia and British Airways -- and three bids of between 500 million and 600 million euros apiece from private investors.

Irish low-cost airline Ryanair stayed out of the bidding as its outspoken chief Michael O'Leary denounced a German "stitch-up" designed to favour Lufthansa.

A Ryanair spokesman said Thursday the airline would refer the matter to the European Union's competition authorities when the time comes.

And Bavarian businessman Hans Rudolf Woehrl claimed the government was favouring the creation of a Lufthansa "monopoly" by rejecting out of hand offers to take over Air Berlin whole.

"It's right that carriers who haven't been able to make ends meet are disappearing from the market," Spohr told Rheinische Post, pointing to Britain's Monarch, Italy's Alitalia (Stuttgart: 2278962.SG - news) and now Air Berlin.

Nevertheless, "competition will intensify in Europe and worldwide," he said, adding that he expects "falling prices" for passengers in future.

Spohr also stressed that "it's in the German interest to have a strong national airline" with worldwide connections.

- Alitalia? -

The Lufthansa chief expanded on his hopes for further growth in an interview with rolling news channel NTV, saying the group would be "number one in Europe with an interest" in relaunching Alitalia.

"Italy is an important market for us," he said, but "Alitalia as it is today is out of the question."

As bosses wrangle over their grand strategies for the sector, unions complain that many of Air Berlin's staff face an uncertain future.

Winkelmann dangled "good job prospects for around 80 percent of our colleagues" with Lufthansa and Easyjet when the exclusive talks began.

Air Berlin pilots called in sick en masse in September in a protest against the lack of information, but they will benefit from a stripped-down recruitment process at Lufthansa -- hungry for aircrew for its Eurowings unit.

The company has organised job fairs for other staff in cooperation with local governments, other big German firms and the federal employment agency.