Etihad Airways partner airberlin is to undergo a "far-reaching" restructuring, involving up to 1,200 job cuts and the near halving of its exiting fleet of aircraft.
The shake-up will also see airlberlin expand on transatlantic routes and reduce its business in low-cost tourist services in the highly competitive European air travel market.
Germany’s second-largest airline, in which Etihad of Abu Dhabi has a 29 per cent stake, said it would become a “leaner, fitter, stronger” carrier operating from its two key hubs in Berlin and Düsseldorf, with a core fleet of 75 aircraft from the middle of next year.
“We are implementing a size and structure for the business that is fit for purpose. We will see revenues grow and costs contained as a result of this restructuring of our business,” said airberlin’s chief executive Stefan Pichler. He added that he expected the loss-making airline to return to operating profit by 2018.
After the restructuring, the airberlin fleet will be reduced from the current 136 aircraft to 75 in what was described as a “modern, cost efficient and leased fleet”.
At a presentation to analysts in Berlin, Mr Pichler said: “The new airberlin will be a sustainable and profitable business, as this restructuring addresses root causes not previously addressed.”
Under the plan, airberlin would provide up to 40 Airbus 320 aircraft to rival Lufthansa, the leading German carrier. It would operate up to 38 of the planes under a six-year lease agreement beginning in 2017 under a "wet-lease" agreement which would see Lufthansa cover all the operating, maintenance and staff costs of the aircraft.
“Fewer staff will be required, with up to 1,200 positions becoming redundant,” airberlin said in its statement.
The airline also announced it would separate its touristic business into an independently operating business unit. It is reviewing its strategic options for the tourism business of airberlin.
Lufthansa separately announced the same 40-aircraft deal, saying it will allow its budget airline Eurowings “to significantly expand its capacities and strengthen its position in the European point-to-point air transport market.”
The final agreement is expected to be concluded in the fourth quarter of this year, Lufthansa added, and is subject to the companies’ supervisory boards and competition authorities.
Mr Pichler said the restructuring plan was necessary due to “significant external market pressures which dictate a change to our current complicated business model.”
“We have to make reductions but we will aim to do so in a supportive manner, offering new opportunities to employees where possible,” he added in the statement. Some of the employees – current totalling around 8,000 – will be offered positions elsewhere in the Etihad partnership of airlines, which includes carriers such as Air Serbia, Alitalia and Jet Airways of India.
The company plans to concentrate on its profitable long-haul business which will be expanded with new routes and additional frequencies, particularly to the United States.
New long-haul markets include Los Angeles and San Francisco in California, and Orlando, Florida. The short and medium haul business will be refocused on key city routes in Europe.
The changes would reduce seasonal exposure which currently sees many of its aircraft lying unused during the European winter months. Last year the company suffered a record loss of €447 million ($501m).
The company has received regular cash injections from Etihad, which owns 29.1 per cent of its shares, and has undergone several restructurings previously to trim costs and achieve a return to profitability.
Saj Ahmad, analyst with Strategic Aero Research, said: “Etihad’s intervention and revamped strategy here will allow aerberin to re-establish itself as a proper full service airline but on a smaller, less expensive scale. Lessons have been learned from Etihad’s revamping of Air Serbia and Alitalia, which both now have the makings now of robust platforms.
“airberlin will be able to offload unused capacity by way of leasing out A320s to Lufthansa, while concentrating on being a long haul airline that will offer choice and better interline connections with Etihad,” he added.
fkane@thenational.ae
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Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
