Air Berlin’s Insolvency Is Credit Negative for Flughafen Berlin Brandenburg
On 15 August, Air Berlin Plc (unrated) filed for insolvency after its leading shareholder, Etihad Airways, announced that it no longer intended to provide financial support to Germany’s second largest carrier. Air Berlin operates a hub at Berlin Tegel airport, which is owned by Flughafen Berlin Brandenburg GmbH (FBB, A1 stable). Although Air Berlin’s share of FBB’s total traffic has decreased over the last few years, it is still FBB’s main airline, accounting for about 28% of total passenger volumes for the seven months that ended 31 July. A loss or reduction of Air Berlin’s services will be credit negative for FBB. However, any loss of airline-seat capacity at FBB airports would likely be temporary given that most passenger journeys on Air Berlin are to and from the Berlin region, rather than connecting to other flights at Berlin airports, and could therefore be served by other airlines. Other airlines, particularly low-cost airlines, which have significantly increased their presence at FBB airports and are targeting further growth in Germany, will likely replace most of Air Berlin’s capacity over the next few months. These airlines achieve higher load factors than Air Berlin and typically have much stronger financial positions, which would enable them to put on additional capacity to serve Berlin airports. Consequently, such a change in airlines may actually improve growth prospects, particularly after the opening of a new FBB airport near Berlin Schonefeld airport lifts some of the existing capacity constraints. Air Berlin also provides connecting flights at Tegel for transferring passengers, feeding its long- haul flights. This transfer demand is likely to be lost even if another airline takes over Air Berlin. However, we anticipate it would not significantly affect FBB’s traffic levels given the operations’ relatively modest size and the likelihood that the resulting freed take-off slots would be used to serve point-to-point traffic, which continues to grow quickly. We also note that FBB is not due any receivables from Air Berlin for past aeronautical charges. Air Berlin started insolvency proceedings under a self-administration regime that allows management to continue to run the company under the supervision of a court-appointed official, with the aim to restructure the company or sell the entirety or substantial parts of the business on a going-concern basis. The airline has secured a €150 million loan guaranteed by the German government to avoid a disorderedly failure and provide time for the possible sale of the business. As a result, we expect that Air Berlin will continue to operate with its existing flight schedule until at least November 2017. Deutsche Lufthansa Aktiengesellschaft (Ba1 stable) has announced that it is in negotiations with Air Berlin to acquire certain of its business units. Should these conversations with Lufthansa fail, other airlines may also be interested in negotiating directly with Air Berlin to secure slots at Berlin Tegel airport, which are currently in limited supply, before they are subject to general slot allocation rules.