KBRA Comments on Air Berlin Insolvency Filing

Editor -

NEW YORK, NY (September 19, 2017) – On August 15, 2017, Air Berlin, Germany’s second- largest airline, filed to commence insolvency proceedings under self-administration at the local District Court (Amtsgericht) of Berlin-Charlottenburg. The filing comes after one of Air Berlin’s key shareholders, Etihad Airways, indicated that it would no longer provide Air Berlin with financial support. KBRA understands that the insolvency filing is the closest equivalent under German law to filing for U.S. chapter 11 bankruptcy protection. It is unclear whether the airline will be restructured or whether its assets will be sold to several interested third parties.

Etihad Airways originally took a minority stake in several airlines, including Air Berlin and Alitalia, to enhance its passenger network and drive growth; however, Air Berlin is the second major airline in less than 5 months from which Etihad has withdrawn financial support. Prior to the insolvency filing, Etihad had repeatedly provided liquidity to Air Berlin to allow it to continue its operations. Similar to Alitalia, Air Berlin struggled with high costs and increased competition on routes operated by U.K.-based carriers. Air Berlin tried, unsuccessfully, to cut unprofitable operations and grow its trans-Atlantic routes to North America. Air Berlin’s lack of profitability contributed to Etihad’s reported $1.87 billion net loss for FYE March 2017 and the ultimate withdrawal of Etihad’s financial support from the airline. Air Berlin received a €150 million loan from the German government to continue operating flights in the short term.

Over the past year, Kroll Bond Rating Agency (KBRA) has closely monitored the developments relating to Air Berlin through discussions with aircraft lessors/servicers and industry participants. Several KBRA-rated aircraft ABS transactions have exposure to Air Berlin. For complete details on the analysis, please see KBRA’s commentary, KBRA Comments on Air Berlin Insolvency Filing, which was published today at www.kbra.com.