We reported last week that failed airline Air Berlin were trying to force an individual passenger to pay for a flight that was cancelled, due to them being bankrupt. Well, now they’re going one better, and trying to sue former owner, Etihad, to the tune of two billion Euros ($2.26bn).
Air Berlin went into insolvency in 2017 after Etihad withdrew funding, but now their insolvency administrator is suing the Abu Dhabi carrier for damages. The courts have said that Etihad have until the end of January 2019, to make a response.
In a statement issued by the German court, they said:
“The claims are for payment of 500 million and the establishment that the defendant is obliged to pay further damages. The Chamber has provisionally set the amount in dispute at up to 2 billion euros.”
Obviously, Etihad are not keen to make this payment, and sound like they’re going to fight tooth and nail to avoid settling such a large amount to the now defunct carrier. A spokesperson commented:
“We believe that the claim is without merit and will defend ourselves vigorously against it”
Why do Air Berlin want to sue Etihad?
Etihad had been providing funding since 2012 to Air Berlin, as a 29% owner of the airline. However, months after saying they would continue funding the German carrier, Etihad withdrew their funding, sending Air Berlin into an unmanageable financial state.
The reason for Etihad’s withdrawal was down to the carrier essentially not having enough money themselves. Their business had declined at a startling rate, posting losses in the billions for two consecutive years.
One of the reasons for their downfall was due to failed investments, including in Air Berlin, which were placing undue stress on their already shaky finances. It seems that now those poor investment choices are coming back to haunt them.
Air Berlin are saying that Etihad did not meet its financial obligations to the carrier. The issue comes down to what is known as a ‘comfort letter’, which was sent from Etihad to Air Berlin in April 2017, assuring its continued support for 18 months. However, by August 2017, Etihad had withdrawn its funding entirely.
How Etihad are trying to turn things around
Following a second consecutive year of more than a $1.5bn loss, Etihad could do without this $2bn headache right now. Since Tony Douglas was appointed as new CEO, Etihad has been doing everything in its power to turn things around.
The struggling airline has cancelled its orders for 62 A350s, trimmed back its existing fleet, cut routes from 117 to 100 and, since 2016, they’ve removed 4,150 employees from service. They’ve also outsourced Australian lounges, made cuts to their ‘boutique’ service and moved a number of pilots over to Emirates.
It’s clear they’re trying to make savings wherever possible (unless of course dear Jet Airways need a $35m cash injection…), so anything that’s potentially going to cost them dearly is most unwelcome.
Despite numerous rumours of a merger on the cards, it’s clear Etihad will not be merging with Emirates any time soon. Instead, they are trying every which way to revise their business plan, in order to stay profitable amidst challenging market conditions.
Will Etihad pay the €2 billion?
The amount under consideration is a lot, particularly considering how much in excess of the €500,000 it should have provided in funding to Air Berlin. Simple Flying think it’s unlikely Air Berlin will achieve anything like their €2bn figure, although its possible that Etihad will be made to pay something.
Having a funding pledge in writing is a pretty strong position for Air Berlin’s administrators, but it’s a case which will set a precedent for the industry. We’ll be watching for the outcome very closely.
A €2bn bill could send Etihad into a downward spiral. So, while the rest of us are thinking of turkeys and presents, the ghosts of Air Berlin will be weighing heavily on Tony Douglas’ mind.