Etihad Aviation Group abruptly ended months of negotiations with TUI AG’s German airline TUIfly to develop a joint venture with Austrian carrier Niki, dismantling a project meant to trim operations of affiliate Air Berlin to a viable level.
“The goal of the talks between the two companies was to form a strong European leisure airline,” Sebastian Ebel, the executive in charge of TUI operations in German-speaking countries and Poland, said in a statement. “However, Niki is no longer available for a joint venture.”
Niki is Air Berlin’s leisure-flight division, and Abu Dhabi-based Etihad paid Germany’s second-largest carrier €300mn ($337mn) in December and January to shift the unit’s operations into the venture with TUIfly. The step was part of a strategy to scale back Air Berlin’s fleet by about half and position the ailing carrier as a pure network airline. As part of that reduction, Air Berlin has already leased 38 narrow-body planes to larger German rival Deutsche Lufthansa.
The move may be a prelude for Etihad to sell its 29% stake in Air Berlin as the Gulf carrier rethinks its European holdings after Italian partner Alitalia went into insolvency administration. 
Etihad, which is still seeking a permanent successor for former chief executive officer James Hogan, is close to hiring banks to advise on options for the Air Berlin stake, including a sale, people familiar said last month. TUIfly’s management told employees yesterday in a letter obtained by Bloomberg that Etihad seems to be seeking prospects for Air Berlin including Niki. Etihad, confirming the breakup of talks, said in a statement that Niki will operate as a separate leisure brand of Air Berlin. The carrier declined to comment further, and Air Berlin also declined to comment.
TUI said it will continue developing TUIfly’s long-term prospects, while the Hanover, Germany-based travel company remains open for a partnership or the formation of joint ventures that may help cut airline-industry capacity in the country. Such a move will “make great strategic sense,” it said.