Deutsche Lufthansa AG is nearing an agreement to operate airplanes now flying under the Air Berlin Plc banner, according to two people with knowledge of the matter, letting Lufthansa bolster its discount flights as Air Berlin cuts back its routes.
Lufthansa’s supervisory board on Wednesday will review a plan to let its Eurowings low-cost arm use about 40 of Air Berlin’s aircraft and their crews, said the people, who asked not to be identified because the information is private. A deal may pave the way for Air Berlin to cut about 1,000 of its 8,600 staff in coming months, Sueddeutsche Zeitung reported on Sunday. The agreement is set to be unveiled at a press conference hosted by Lufthansa, Eurowings and Air Berlin in Frankfurt later this week, one of the people said.
Representatives at Lufthansa, Germany’s largest carrier, and Air Berlin, the country’s second-biggest, declined to comment.
Using Air Berlin aircraft would help Lufthansa expand its Eurowings unit, which is trying to compete with much larger rivals Ryanair Holdings Plc. and EasyJet Plc, which are growing aggressively in Germany. A deal would also ease pressure on ailing Air Berlin, which racked up 1.17 billion euros ($1.32 billion) in losses over the past three years, prompting several bailouts by dominant shareholder Etihad Airways.
Focusing Air Berlin’s remaining fleet on the Berlin and Dusseldorf hubs would allow Abu Dhabi-based Etihad to keep its access to vital links and continue transporting passengers from Asia and the Middle East to Europe on its own networks. It would also shrink Air Berlin’s route network to a more viable size.
An Etihad spokeswoman declined to comment.
Air Berlin shares surged as much as 10 percent to 76.6 euro cents and were up 7.2 percent at 5:11 p.m. in Frankfurt. The stock has dropped 27 percent over the past 12 months, valuing the company at 87 million euros. Lufthansa shares fell 0.9 percent.
This deal may be followed by a separate agreement to combine Air Berlin’s Austrian Niki subsidiary, which operates 19 aircraft, with 14 Boeing Co. 737-model planes that Air Berlin currently leases with staff from TUIfly, the German airline of tour operator TUI AG, Sueddeutsche Zeitung said. That means Air Berlin’s fleet, currently at 144 aircraft, would be effectively cut in half.
Henrik Homann, who runs TUI’s airline operations, told employees on Friday in a memo that the company must be “prepared to safeguard its economic interest” if the situation at Air Berlin continues to deteriorate. Recent media reports have speculated that TUI may seek to sell its German airline unit, which the company has denied.
Lufthansa Chief Executive Officer Carsten Spohr made Eurowings a critical part of his strategy, and pledged to expand the airline into Europe’s third-largest low-cost carrier. Growth may come from using other carriers’ aircraft and staff, buying a stake in a partner or giving up full control through a merger, he has said.
©2016 Bloomberg L.P.
This article was written by Richard Weiss from Bloomberg and was legally licensed through the NewsCred publisher network.