Gulf carrier Etihad Airways is to subscribe to a €300 million ($415 million) convertible bond in Air Berlin as part of a €450 million recapitalisation plan after the struggling German carrier disclosed a full-year operating loss of €231.9 million for 2013.

The German carrier, which has twice delayed publication of its full-year results, this evening revealed the extent of its full-year loss in 2013 and the appointment of a restructuring executive as well as the recapitalisation to help it push through a deeper turnaround.The €231.9 million loss compares to an operating profit €70.2 million in 2012, a year in which Air Berlin's financial results where boosted by a one-off gain from the sale to Etihad of a stake in its frequent flyer programme.

The restructuring airline generated revenues of €4.15 billion in 2013, down from €4.31 billion in the previous year. Its operating costs over the same period were cut from €4.51 billion to €4.44 billion. Air Berlin pre-tax losses in 2013 spiralled to €305.2 million compared to a small loss in 2012 and at a net level it moved from a modest profit of €6.8 million to a loss of €315.5 million in 2013. The carrier's cash position slipped by a €100 million to €223.1 million.

The airline says that while its Turbine efficiency programme achieved its €200 million target in 2013 - from a combination of cost savings and revenue enhancements - the company faced an "unexpectedly sluggish summer season due to high temperatures in Central Europe, followed by the traditionally difficult winter period".

In disclosing the loss for 2013, the airline has announced the appointment of its chief maintenance officer Marco Ciomperlk to lead its restructuring efforts in the new role of chief restructuring officer.

"Even though the Turbine efficiency programme has delivered according to plan and will take full effect in 2014, we have to increase the pressure during implementation, drive further measures as well as thoroughly evaluate our possible courses of action including Air Berlin´s long-term business model," says airline chief executive Wolfgang Prock-Schauer. "This restructuring will focus on efficiency, while our core proposition to offer best service to our guests and partners remains unchanged. We value the confidence our shareholders and the capital market have placed in us to enable a more fundamental restructuring.”

In order to facilitate the deeper turnaround, the planned recapitalisation will inject €450 million into the airline before the end of the year. This will involved existing shareholder Etihad subscribing to a convertible bond of €300 million. "As this is a perpetual subordinated bond, it will be posted as equity under IFRS accounting principles," says the company.

"Second, in order to further strengthen the financial structure, Air Berlin will issue a bond in the amount of a minimum of €150 million. This bond is arranged by Anoa Capital. The proceeds will be used for general corporate financing purposes," the airline says. "Further the holders of the 2014 and 2015 bonds will be offered to exchange their existing bonds at preferential terms as set out in the exchange offer into the new bonds with a maturity in 2019."

In addition the maturity of a partially undrawn credit facility from its largest shareholder - Etihad Airways holds a 29% stake in the carrier - has been extended by five years to 2021. The company says the current ownership structure will remain unchanged after the recapitalisation.

“With our successful and comprehensive recapitalisation we have the necessary financial breathing space to deeply restructure the airline and bring it back to operative profitability," says Air Berlin chief financial officer Ulf Huttmeyer. "We are putting out an attractive offer to exchange the 2014 and 2015 bonds with the aim to further ease and streamline the maturity profile going forward in order to support the focus on operational restructuring."

Earlier this month the European Commission opened an investigation looking into whether a number of non-EU investments in European airlines - including Etihad's stake in Air Berlin - comply with EU ownership and control rules.

Image credit: Air Berlin - Photographer Dennis Bhogal

Source: Cirium Dashboard