Lufthansa to sign 'milestone deal' for bankrupt Air Berlin

Lufthansa is set to sign a deal to purchase some assets of smaller rival Air Berlin, after the latter went bankrupt.

Germany's second-largest airline filed for insolvency in August, after Abu Dhabi-based Etihad Airways, Air Berlin's main shareholder, withdrew its financial support after the latter racked up years of losses.

Carsten Spohr, the chief executive of Germany's flagship airline, said the deal will be formally unveiled on Thursday (12 October).

"We will see a milestone in the history of Lufthansa and Air Berlin today," he was quoted as saying by German daily Rheinische Post.

According to Reuters, Lufthansa will acquire Air Berlin's subsidiaries Niki and LG Walter, as well access to take-off and landing slots at Air Berlin's hubs at Berlin's Tegel airport and at Duesseldorf airport.

Speaking on Thursday, Spohr indicated he expected the deal would receive approval from the European Union by the end of the year, which would allow Lufthansa to stabilise operations within six to nine months.

News of the impeding deal was well received by analysts, with strategists at HSBC lifting the target price on Lufthansa shares from €25 to €29. Meanwhile, analysts at Bernstein Research raised their rating on Lufthansa's shares to "outperform" from "market-perform", forecasting the deal with Air Berlin will add between €70m to €90m to annual operating profits at Lufthansa's low-cost subsidiary Eurowings in the medium term.

Investors also appeared pleased with news of the proposed deal, as shares in Lufthansa traded 3% higher by lunchtime on Thursday.

EasyJet deal looms

Last month, Air Berlin said negotiations with Lufthansa and easyJet would continue until 12 October, and the latter, which has a base at Berlin's Schoenefeld airport, has reportedly been discussing the possibility of acquiring 27 to 30 aircraft from its bankrupt rival.

Earlier this week, Air Berlin announced it will stop flying at the end of October, telling employees that flights operating under its airline code "will no longer be possible after October 28 at the latest".

Air Berlin undertook a restructuring exercise last year to stem losses, after accumulating debts for almost a decade. In 2016, the airline also confirmed it no longer owned any of its aircraft, having sold and leased back its fleet. It also announced it would be reducing the number of destinations it flies to from 140 to 70.

However, that did not prevent it from reporting a record loss of €782m (£713m) in the last financial year.

The beleaguered carrier has been trying to find a buyer ever since, in a bid to avoid joining the list of 31 European airlines that have ceased operations since 2013.

The deal between Lufthansa and Air Berlin comes a week after Monarch, Britain's fifth-largest airline, halted trading with immediate effect.

On 2 October, the Civil Aviation Authority revealed Monarch had entered administration, after failing to secure a temporary extension to its Air Travel Organiser's Licence (ATOL) for the third time in four years.

Some 750,000 future bookings were cancelled as a result, with around 110,000 Monarch customers stranded overseas. Approximately 2,000 Monarch employees lost their jobs.

Meanwhile, Alitalia, Italy's flagship carrier, which filed for insolvency in April, is still looking for a buyer. The carrier was forced into administration after staff spurned a proposed turnaround plan, which included salary cuts and layoffs aimed at rescuing the stricken carrier.

Alitalia, which is 49% owned by Etihad Airways, has rarely reported a profit in its 70-year history and reported a net loss of €199m (£176m) in 2015, the latest year for which financial reports are available.