Lufthansa cancels plan to buy Air Berlin's Niki

Lufthansa cancelled its plan to buy Air Berlin's Austrian subsidiary Niki on Wednesday after the European Commission signalled that it would not approve the merger by Dec. 21.

In contrast to its debt-saddled mother corporation, Niki was a profitable budget airline until Air Berlin was declared bankrupt in August. According to German newspaper Sueddeutsche Zeitung (SZ), Frank Kebekus, Air Berlin's chief insolvency administrator, is now urgently attempting to negotiate a sale of Niki to British travel operator Thomas Cook in order to prevent the subsidiary's insolvency.

SZ reported that Niki would be unable to maintain operations unless a buyer came forward quickly. The company's failure would result in the loss of around 1,000 jobs and leave hundreds of thousands of passengers stranded at airports.

Furthermore, Niki would lose their highly-prized starting and landing rights at German airports.

Aside from Lufthansa, Niki attracted bids from International Airlines Group (IAG) and Thomas Cook.

Kebekus and Air Berlin's creditors opted for Germany's largest airline Lufthansa which made the highest financial offer in the tender. However, anti-trust officials at the European Commission warned they were concerned about Lufthansa's increasingly dominant position in the German aviation market.

Nevertheless, Lufthansa continued to pursue the simultaneous acquisition of Niki, as well as separate Air Berlin subsidiary LG Walter and the lion share of the mother corporation. It hoped to gain expedited approval from European authorities in exchange for concessions on starting and landing rights.

Lufthansa currently finances Niki's operations by injecting around 10 million euros (18 million U.S. dollars) into the company every week. Lufthansa's chief executive officer (CEO) Carsten Spohr had recently emphasized that he was unwilling to uphold this arrangement throughout a detailed anti-trust assessment by the European Commission. Such an in-depth enquiry would have taken 90 days, at a cost of more than 200 million euros for Lufthansa.

While Lufthansa may thus have been able to cut its related losses on Wednesday, the sudden lack of a buyer for Niki remains highly inconvenient for German policymakers who granted Air Berlin an emergency credit facility of 150 million euros.

German officials had planned for this loan to be repaid with proceeds from the sale of Niki and LG Walter. Although Lufthansa still intends to purchase LG Walter, it is questionable whether sufficient funds can still be raised to reimburse taxpayers.

SZ cited insider information that only Lufthansa's bid for Niki had been high enough to ensure that the government was compensated for its emergency credit facility.

At least Air Berlin's insolvency administration is unlikely to face resistance from the European Union (EU) should they succeed in selling Niki to Thomas Cook at the last minute. EU anti-trust officials already granted their unconditional approval for the sale of a share of Air Berlin to Easy Jet on Tuesday.

Niki currently operates around 20 Airbus A321 jets on routes linking Germany to European holiday destinations and also rents seven jets from German travel operator TUI fly. Acquiring the Air Berlin subsidiary would allow Thomas Cook to strengthen its German base and compete more effectively with Lufthansa's own budget airline Eurowings.