European airlines struggle under strain of credit crunch
29 October 2008
Agence France Presse

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European airlines felt the pinch from the global financial crisis Wednesday as Denmark-based carrier Sterling Airways filed for bankruptcy and German giant Lufthansa reported a net profit nosedive.

Sterling, a low-cost carrier in difficulty for several years, announced it was abandoning efforts to keep the airline flying, blaming exposure to the collapse of Iceland's financial sector.

"Over a three to four week period, the whole financial system melted down, and that resulted in our shareholder being unable to continue his support to the company," Sterling said in a statement, nearly three months after it was sold to Icelandic business tycoon Palmi Haraldsson.

The collapse of the company left passengers stranded. All flights were cancelled and travellers holding tickets would not be refunded, Sterling said.

The company, which was earlier owned by Northern Travel Group, comprised of Icelandic investment groups Fons, FL Group and Sund, would file for bankruptcy later Wednesday, the statement added.

Meanwhile, the Austrian government agreed to make available up to 500 million euros (639 million dollars) in financing to the ailing flag carrier Austrian Airlines to get it ship-shape for sale.

The government has ordered OeIAG, the Austrian state holding company, to sell its 41.6-percent stake in the loss-making airline.

And Lufthansa reported a 75-percent fall in net profit in the third quarter due to high fuel costs and weakened sales arising from the credit crunch.

Lufthansa posted 149 million euros (189 million dollars) in net profit between July and September, after saying Tuesday that it would cut its 2008 operating profit target to 1.1 billion euros from 1.38 billion euros, the same figure it posted last year.

Operating profit in the third quarter plunged by 53.4 percent to 279 million euros, the company said in a statement.

In the first nine months of the year, operating profit fell by 9.3 percent to 984 million euros. Net profit during the same period plummeted by 65.1 percent to 551 million euros.

In a separate development, the company said on Wednesday it would boost its stake in British carrier BMI giving it control of the company.

The increase to 80 percent from Lufthansa's previous 30-percent stake in BMI, formerly known as British Midland, was the result of an option held by the airline's founder Michael Bishop to sell his stake of 50 percent plus one share to the German carrier.

Lufthansa's nosedive in profits came as airlines reported some relief from falling oil prices following record highs in July.

But other airlines have also reported difficulties despite the drop in oil prices.

Air France-KLM last week said it would struggle to meet its billion-euro earnings target and that it would trim its investment plans.

It unveiled a plan to cut costs by up to 1.2 billion euros over the next five years.

The future of cash-strapped Italian carrier Alitalia also remained uncertain.

British Airways earlier this month reiterated the company's interest in a partnership with Alitalia.

The airline, which is 49.9 percent state-owned, is losing about three million euros (4.3 million dollars) a day and has debts totalling some 1.2 billion euros, which will have to be shouldered by the Italian taxpayer.

Non-European airlines were feeling the strain too with carriers worldwide expected to lose around 5.2 billion dollars this year owing to sharply higher oil prices and declining demand, the industry association IATA said on October 17, with losses expected to continue next year.

Norwegian Air to start 11 routes from Copenhagen

OSLO, Oct 29 (Reuters) - Norwegian Air Shuttle said it plans to set up a new base in Copenhagen after the collapse of Danish low-cost carrier Sterling on Wednesday, and start flying new routes from next month.

Norwegian Air, which competes with Scandinavian leader SAS , said it would station two aircraft in Copenhagen from Nov 6 and fly six routes, including to Aalborg, Stockholm and Oslo. Other routes, including to London, Amsterdam and Rome, would open "shortly after", it added.

Sterling, which had signed a cooperation agreement with Norwegian Air in June, said it would file for bankruptcy after its Icelandic owners could no longer support it financially, stranding thousands of passengers throughout Europe.

Norwegian Air Chief Executive Bjorn Kjos said that Sterling was a source of low-cost air tickets from Copenhagen for years and that his airline would continue on this path.

"From now on, Norwegian will be the airline to visit for good quality, low cost airline tickets out of Denmark," Kjos said, adding that Norwegian's expansion plan was "well funded".

"Very strong third quarter results prove that our business model is sustainable even in tough times for the industry," he said.

Norwegian Air and Sterling had signed a cooperation agreement for the busy Oslo-Copenhagen and Stockholm-Copenhagen routes but the deal was never implemented due to a probe by competition authorities.

Separately, SAS -- whose shares surged 22 percent on Wednesday in the wake of Sterling's collapse -- said on its website that it was offering stranded Sterling clients low cost travel back to Scandinavia.

"Sterling passengers stranded in Europe travelling to Scandinavia and ... within Scandinavia... are offered the possibility to buy a ticket, only covering airport taxes and other expenses, on a SAS operated flight," it said.

SAS will accept passengers as long as capacity is available.

Shares in Norwegian Air rose 8.1 percent to 28 crowns on Wednesday, outpacing a 2.7 percent rise on Oslo's main bourse index <.OSEBX>.

Danish airline Cimber Air buys parts of bankrupt airline Sterling
4 December 2008

COPENHAGEN, Denmark (AP) - Danish domestic airline Cimber Air said Thursday it has taken over key parts of bankrupt budget airline Sterling Airways A/S for an undisclosed amount.

The airline said it bought the Icelandic-owned airline's name, operation certificate and Web sites, but had not taken over the aircraft or the staff.

Sterling, which is based in Denmark, filed for bankruptcy on Oct. 29. The airline said at the time it was unable to raise money for a restructuring program after its owner, Iceland's FL Group, was hit hard by the collapse of Iceland's financial system.

"In buying Sterling we saw a unique opportunity to safeguard and extend our present position as Denmark's leading domestic airline and at the same time extend our route network to destinations in Europe," Cimber's Chief Executive Joergen Nielsen said.

The plan is that Sterling will continue as an independent airline and eventually return to the Nordic travel market, he said in a statement. Nielsen didn't exclude offering jobs to some of the former Sterling employees as the new company expands its activities.

Takeover talks for Sterling failed Nov. 18 after a potential buyer withdrew due to a disagreement with a cabin crew labor union. After the collapse, the trustees handling the estate said Sterling would be dismantled and sold in parts.

Cimber, based in Soenderborg, southwestern Denmark, carried around 1 million passengers last year.