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Etihad Airways urges speedy restructuring of Air Berlin German carrier posts 2013 net loss, finances deteriorate

DUBAI, April 28, (RTRS): Abu Dhabi’s Etihad Airways on Monday called for an “accelerated and fundamental restructuring” of Air Berlin, after the German airline’s largest shareholder injected cash into the loss-making carrier. Air Berlin said late on Sunday night Etihad has subscribed to a convertible bond worth 300 million euros ($415 million) and the Gulf airline has also agreed to extend a $255 million loan by another five years. “The airline is clearly in a very challenging position,” Etihad’s Chief Executive James Hogan said in a statement following Air Berlin’s announcement. “However, we are confident the business is moving in the right direction, and can be turned around but it needs an accelerated and fundamental restructuring.” Air Berlin on Sunday named Marco Ciomperlik, currently its chief maintenance officer, to its management board to oversee a restructuring programme for the airline. The German airline had said last month it was in talks over certain options that prompted speculation that Etihad could gain more control over the carrier.

But Hogan said Etihad would remain a “strategic minority investor” in Air Berlin. The German airline also said its recapitalisation would not change the ownership structure. “Etihad Airways believes Air Berlin can become a sustainably profitable business, securing the jobs of its 8,900 employees and the many thousands more workers it indirectly supports,” he said, adding that Etihad is looking at a long-term benefits of the partnership and is committed to the strategy. Etihad, which is backed by Abu Dhabi’s oil wealth, is using a combination of equity alliances and organic growth to expand its global reach and compete with fast-growing regional rivals Emirates and Qatar Airways. It took a 29.2 percent stake in the struggling German airline in 2011 and also extended a $255 million loan to the carrier. The Gulf airline later took a majority stake in Air Berlin’s frequent flyer programme helping the carrier post its first profit in five year in 2012.

Air Berlin still reported a 2013 loss before interest and tax (EBIT) of 231.9 million euros, compared with a year-earlier profit of 70.2 million. The European Union is looking into whether Etihad exercises more control than allowed under the region’s rules for airlines with a European operating licence. Etihad also has also minority stakes in a number of other airlines, including Virgin Australia, Aer Lingus and India’s Jet Airways. Air Berlin, the German airline partly owned by Etihad Airways, will have to step up restructuring and could cut more jobs as it struggles to return to profit, its chief executive said on Monday. The finances of Air Berlin, Germany’s No.2 carrier after Lufthansa, have been deteriorating for several years as it struggled to halt losses and manage its debts following a period of rapid growth. Late on Sunday, Air Berlin unveiled its fifth annual loss in six years and called on investors including Abu Dhabi-based Etihad to stump up more cash by buying bonds. The recapitalisation will inject 450 million euros into its accounts by the end of 2014 and return Air Berlin to a positive equity ratio, which means its assets will exceed its debts again.

To fix its finances and return to profit in the long run, Air Berlin is cutting 900 jobs, or 10 percent of its workforce, and slashing unprofitable routes under its “Turbine” restructuring programme. “But I have come to the conclusion that Turbine, as it is set up now, is simply not enough,” CEO Wolfgang Prock-Schauer told journalists during a conference call on Monday. He said Air Berlin would make “structural cuts” and review its business model but declined to say what changes could be made or when a decision would be taken on the matter. Air Berlin is also issuing additional new bonds with a volume of at least 150 million euros and making an exchange offer to bondholders with notes due in 2014 and 2015 . Shares in Air Berlin, which have lost about 28 percent of their value over the past year, were down 4.7 percent at 1.671 euros by 1110 GMT.

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