Lufthansa (LHAG.DE) has abandoned plans to buy Air Berlin (AB1.DE) unit Niki due to competition concerns, grounding Niki and making it the latest to join the list of Europe’s collapsed airlines this year.

Tough competition and falling ticket prices have led to the demise of Monarch and Air Berlin while Alitalia has filed for insolvency protection.

Air Berlin filed for insolvency in August and Lufthansa agreed a deal in October to buy its Niki and LGW businesses. However, Lufthansa said on Wednesday it was withdrawing the bid for Niki after the European Commission indicated it would not approve the deal.

Austria-based Niki, with a fleet of 23 Airbus A321 planes, had not filed for insolvency itself, but was still flying with the help of funding from Lufthansa.

Air Berlin’s administrators in response said they could not find another buyer for leisure airline Niki, founded by former motor racing driver Niki Lauda in 2003, at short notice and so Niki had filed for insolvency proceedings in Berlin and stopped flying.

They had been in contact with British Airways’ parent IAG (ICAG.L) and Thomas Cook (TCG.L) following the Commission’s concerns but those failed to result in a new deal.

“The failure of the Niki sale and the insolvency is incredibly disappointing and would have been avoidable,” Air Berlin administrator Frank Kebekus said.

He said the Commission’s stance was not understandable and that the collapse of Niki would lead to less competition, due to flights being removed from the market.

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He had previously said a collapse could threaten 1,000 jobs, and render 800,000 flight tickets worthless.

The Austrian transport ministry estimated that up to 10,000 Niki passengers could be stranded within the next two weeks and a spokesman said chartering planes was an option to bring them back.

Lufthansa’s planned takeover of the Air Berlin units had raised concerns among rivals that Lufthansa would become too dominant in Germany, with Ryanair (RYA.I) boss Michael O‘Leary describing the deal as a “stitch-up”.

Lufthansa said it had offered to give up take-off and landing slots in order to get the deal approved, but that the European Commission considered that to be insufficient.

“It was clear from the start that Lufthansa and Air Berlin overlap on a very significant number of routes, with clear risks to Austrian, Germans and Swiss consumers and to effective competition,” the Commission said.

Lufthansa said it still planned to buy Air Berlin subsidiary LGW and would submit a revised proposal, including foregoing slots, to the Commission on Wednesday. The Commission said it would now limit its review to LGW.

Niki Lauda said he was interested in buying the airline he founded back, but out of insolvency proceedings. 

Lufthansa will likely still be able to expand its market position even without the Niki deal. It has previously said it planned to grow the Eurowings’ fleet to about 210 aircraft from 160 as a result of the Air Berlin insolvency. 

Lufthansa said on Wednesday it still intended to pursue growth plans for its Eurowings budget subsidiary and would apply for any Niki slots that become free in the event of an insolvency.

It said the money it planned to pay Niki would now be used to grow on its own in Niki’s markets.

“(From a financial point of view), this leads to a comparable result for the Lufthansa Group,” it said.

If Lufthansa’s purchase of LGW can proceed the price will be around 18 million euros ($22 million), Air Berlin said, compared to a previous price of 210 million euros for the deal including Niki.

The German government had been expecting to use the sale proceeds as repayment for a 150 million euro bridge loan it awarded to Air Berlin to keep it flying after it filed for insolvency protection.

The government said it expected only part of the loan could now be repaid and it would take steps to minimise losses for taxpayers.

Britain’s easyJet (EZJ.L) is paying 40 million euros for Air Berlin’s operations at Berlin Tegel, a deal which has received Commission approval. That would leave the German government nearly 100 million euros short.

source: AFP