Etihad Airways has won a court battle that could have resulted in the debt-laden Persian Gulf airline being forced to pay creditors up to €2 billion in damages following the collapse of low-cost German airline Air Berlin in 2017. The UK Supreme Court has denied the insolvency administrator the right to appeal after concluding that Etihad had no obligation to continue pumping money into Air Berlin before it went bankrupt.
The administrators had originally brought the case in a German court before proceedings were moved to London where international business disputes are often heard. The latest legal case before the High Court in London is a lawsuit brought by Qatar Airways against aircraft manufacturer Airbus over an alleged safety issue with the state-of-the-art A350 aircraft.
In the Etihad case, creditors acting on behalf of Air Berlin alleged that Etihad had promised to keep it afloat for at least another 18-months but the required money was never forthcoming. Etihad had bought a 29 per cent stake in Air Berlin as part of a disastrous equity investment scheme and was seeking a way out of its failed investments when Air Berlin went bankrupt.
The insolvency company, however, claimed a so-called ‘comfort letter’ sent by Etihad to the Air Berlin board that promised the Abu Dhabi-based airline would continue funding the loss-making German carrier was legally binding. Four months after sending the letter, Etihad pulled the plug on Air Berlin and funding dried up.
At the time, Etihad said it was forced to withdraw further support from Air Berlin when losses started to accelerate faster than expected. By this point, Etihad had already withdrawn a financial lifeline for the now-defunct Italian flag carrier Alitalia.
After the lawsuit was filed in Berlin, Etihad successfully fought for the case to be moved to London and judges determined that Etihad had no obligation to keep funding Air Berlin.
The insolvency company led by Lucas Flother had claimed €500 million in damages but the Berlin court initially set the upper limit at €2 billion. The case was appealed all the way to the highest court in the land without success, reports the Berliner Morgenpost.
Etihad had maintained all along that the legal claims were “without merit”. The airline’s failed investment strategy landed Etihad with a record $1.95 billion USD loss in 2016. The airline brought in Tony Douglas as a new chief executive charged with turning the loss-making carrier around.
Douglas has deliberately made Etihad a much smaller airline as part of a concerted effort to make the airline profitable. Etihad is expected to report a profit by the end of 2022 or by early 2023.
