Air Berlin has filed for insolvency at a court in the German capital today.
The carrier says it has been notified by shareholder Etihad Airways "that it no longer intends to provide Air Berlin with financial support".
Abu Dhabi-based Etihad owns 29% of Air Berlin and has provided financial support for the Oneworld airline since becoming a shareholder in 2011.
Germany's federal government has stepped in with a bridging loan in order to maintain flight operations "for the long term", Air Berlin says. "All flights operated by Air Berlin and [Austrian subsidiary] Niki will continue as planned," it stresses.
The federal ministry of transport and digital infrastructure says it has provided a loan of €150 million ($176 million) through German bank KfW as Air Berlin would have otherwise been required to immediately suspend operations.
"Negotiations between Air Berlin and Lufthansa and another airline about the acquisition of business units are far advanced so that over the next weeks a decision can be finalised by Lufthansa and a further airline," the ministry says.
Air Berlin chief executive Thomas Winkelmann states: "We are working tirelessly to achieve the best possible outcome for the company, our customers and employees, given the situation."
Lufthansa says it is "jointly with German government" supporting Air Berlin's restructuring effort. In addition to ongoing negotiation "to take over parts of the Air Berlin group", Lufthansa says it is "exploring the possibility of hiring additional [Air Berlin] staff".
Etihad describes Air Berlin's insolvency filing as "extremely disappointing for all parties, especially as Etihad has provided extensive support to Air Berlin for its previous liquidity challenges and restructuring efforts over the past six years".
The Gulf carrier notes that, despite its injection of €250 million in April, "Air Berlin's business has deteriorated at an unprecedented pace, preventing it from overcoming its significant challenges and from implementing alternative strategic solutions".
However, Etihad insists it remains "open to helping find a commercially viable solution for all parties" and that it "will support Air Berlin's management during these difficult times".