This paper tries to outline the reasons why AirBerlin went into bankruptcy. The reasons are being presented from a financial perspective, presenting the necessary financial data that resulted in the financial loss of the firm, as well as the economic perspective that led to this disaster. Furthermore, troubles in the whole airline industries of recent decades are being highlighted through out the paper.
The Air Berlin PLC & Co. Luftverkehrs KG i.I, with seat in Berlin and basis on the airport Berlin Tegel was a German airline. It was a wholly owned subsidiary of the listed Air Berlin PLC, whose largest single shareholder was the Emirati Etihad Airways. On 15 August 2017, Air Berlin requested the opening of insolvency proceedings, the self-economic operation was continued with the help of a federal guarantee until 27 of October 2017. Parts of the company, including the business at Tegel Airport and its subsidiary LGW, were sold to Lufthansa and easyJet. The last airline of Air Berlin, Belair, filed for bankruptcy in mid-August 2018. In order to work out the causes for this bankruptcy, I will also give some more insight on the history of the company.
Table of Contents
1. Introduction
2. Background information Air Berlin
3. IPO and first signs of financial issues
4. Further financial troubles and Bankruptcy
5. Reasons for the Bankruptcy
6. Why is the airline industry so troublesome
7. Conclusion
Research Objective and Scope
This paper examines the underlying causes of corporate failure within the airline industry, specifically focusing on the 2017 bankruptcy of the German carrier Air Berlin, to identify systemic issues and potential preventative measures.
- Historical evolution of Air Berlin from charter service to major carrier.
- Financial challenges and the impact of failed restructuring attempts.
- Structural and economic constraints inherent in the modern airline industry.
- Competitive pressures from low-cost carriers and operational complexity.
- Strategic analysis of fleet management and market positioning.
Excerpt from the Book
Why is the airline industry so troublesome
The insolvency of Air Berlin has again proven what is true for the whole industry: Airlines get problems as soon as they run out of other people's money. In this case, the sheikhs had no desire to put millions more into a bottomless pit. It would have been better if they had previously dealt with the rules of an industry that, calculated over decades, has not made any money over the entire business cycle. Airlines are a bad investment. The few exceptions that make money make everything right. Those who survive reasonably, much. Air Berlin had no chance, because the airline could not change too many factors. The mistakes were made years ago. It is all the more important to look at the reasons for the problems in the industry (Europe – Airlines, 2018).
It is far more difficult for airlines to differentiate on the cost side than for companies in other industries. Everyone buys their aircraft from the same suppliers, either Airbus or Boeing. Everyone needs the same kerosene to refuel their machines, and they all pay the same landing fees at the airports, unless they switch to subsidized regional airports. Only in terms of staff costs can airlines benefit. Who pays the lowest wages, has an advantage. No wonder, then, that the crucial topic of the industry in recent years has been the recurrent discussion about reducing personnel costs. This is also the reason why companies are
Summary of Chapters
1. Introduction: Presents the global trend of airline bankruptcies and defines the scope of researching Air Berlin’s insolvency.
2. Background information Air Berlin: Outlines the history of Air Berlin from its founding in 1978 to its growth as a significant German airline.
3. IPO and first signs of financial issues: Details the company’s corporate transformation in 2006 and the subsequent financial instability.
4. Further financial troubles and Bankruptcy: Chronicles the final years of the airline, leading up to the formal filing for insolvency in 2017.
5. Reasons for the Bankruptcy: Analyzes the failure of restructuring programs and the impact of excessive operational and financial liabilities.
6. Why is the airline industry so troublesome: Explores the systemic challenges, such as high entry barriers and low differentiation, that make the aviation sector difficult to manage.
7. Conclusion: Summarizes how emotional investment and poor strategic management contributed to the inevitable collapse of Air Berlin.
Keywords
Air Berlin, Bankruptcy, Airline Industry, Insolvency, Restructuring, Etihad Airways, Lufthansa, Low-cost carriers, Aviation Management, Financial Failure, Fleet Management, Corporate Governance, Airline Economics, Market Entry, Operational Costs.
Frequently Asked Questions
What is the primary focus of this paper?
The paper investigates the causes behind the insolvency of the German airline Air Berlin and uses it as a case study to understand the broader financial instability prevalent in the modern airline industry.
What are the central themes discussed?
The core themes include the history of Air Berlin, the financial difficulties leading to bankruptcy, the impact of restructuring efforts, and the systemic economic challenges faced by commercial airlines.
What is the main research question?
The paper seeks to understand how the tendency for financial ruin in the airline sector occurs and what factors contribute to the inability of established carriers to remain profitable.
Which methodology is applied in this research?
The author employs a case study analysis approach, examining historical company data, financial reports, and industry trends to explain the collapse of a specific firm.
What topics are covered in the main body of the work?
The main body covers the company's development, its IPO, multiple restructuring attempts, the final insolvency proceedings, and an analysis of why the airline business model is inherently difficult to sustain.
Which keywords define the scope of the paper?
Key terms include Air Berlin, Bankruptcy, Airline Industry, Restructuring, Aviation Economics, and Market Competition.
How did fleet management contribute to Air Berlin's financial decline?
The paper highlights that operating a fleet of diverse aircraft types from different manufacturers created enormous operational complexity, increased maintenance costs, and reduced flexibility, ultimately damaging profitability.
Why are low-cost carriers more successful than traditional airlines?
According to the text, low-cost carriers benefit from higher fleet utilization, aggressive cost-cutting measures, and optimized turn-around times, which traditional carriers often fail to replicate effectively.
What role did shareholders like Etihad Airways play in the timeline of the bankruptcy?
Etihad Airways was the largest single shareholder and attempted to support the airline, but eventually refused further funding, triggering the final insolvency proceedings.
What is the author's final conclusion regarding the industry?
The author concludes that the industry suffers from an "emotional" approach to business where optimism often replaces rational strategic planning, making it nearly impossible to turn failing carriers around.
- Quote paper
- Peter Rössel (Author), 2018, Air Berlin Bankruptcy. Backgrounds and Reasons, Munich, GRIN Verlag, https://www.grin.com/document/456225
