Lufthansa scraps deal for Air Berlin's Niki

By Victoria Bryan

BERLIN (Reuters) - Lufthansa has abandoned plans to buy Air Berlin subsidiary Niki after being told by the European Commission that it would not allow the deal, meaning Niki could 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.

Lufthansa's planned takeover of Air Berlin businesses Niki and LGW had raised concerns among rivals that Lufthansa would become too dominant in Germany, with Ryanair boss Michael O'Leary describing the deal as a "stitch-up".

Lufthansa said on Wednesday 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 LOOKING FOR BUYER

The withdrawal by Lufthansa leaves Air Berlin's administrators scrambling to find a new buyer for Austria-based Niki, which had not filed for insolvency itself and was still flying with the help of funding from Lufthansa.

The administrators said on Tuesday British Airways' parent IAG was no longer interested and talks with Thomas Cook had not yet resulted in a viable deal. Thomas Cook declined to comment on Wednesday.

The German government, which stands to lose out on a loan given to Air Berlin, said it expected Niki, founded by former Formula 1 driver Niki Lauda, to file for insolvency protection and be grounded. Lufthansa and Air Berlin's administrators had also previously warned that would happen if the deal was not approved.

The Austrian transport ministry said it would repatriate any Niki passengers stranded abroad by cancelled flights.

Niki Lauda said he was interested in buying the airline back.

LUFTHANSA'S PLANS

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 had been providing funding to keep Niki in the air until the deal was approved and said that money 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 euros 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.

easyJet 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.

($1 = 0.8499 euros)

(Reporting by Victoria Bryan, Kirsti Knolle in Vienna; Additional reporting by Klaus Lauer in Berlin and Alistair Smout in London; Editing by Tom Sims and Elaine Hardcastle)