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HAMBURG, Germany (Reuters) - Lufthansa (LHAG.DE) has held talks with the Abu Dhabi government about the future of loss-making Air Berlin (AB1.DE), its chief executive said on Friday, although debt and other obstacles to a takeover of its smaller rival remain.
Lufthansa Chief Executive Carsten Spohr traveled to Abu Dhabi this week as part of a business delegation accompanying German Chancellor Angela Merkel.
Speaking on the sidelines of the group's annual shareholders meeting in Hamburg on Friday, Spohr said the Abu Dhabi government was aware that Air Berlin's debt, costs and anti-trust issues remain obstacles to Lufthansa taking over the rest of the struggling airline.
Air Berlin, 29 percent-owned by Abu Dhabi state-owned carrier Etihad, already leases 38 planes and crews to Lufthansa.
"The debt problem can only be resolved by the government of Abu Dhabi," Spohr said.
Air Berlin is undergoing a deep restructuring. Together with the Lufthansa lease deal and plans to spin off leisure flights into a separate joint venture, its fleet is set to halve to around 75 planes.
When it comes to the anti-trust problems potentially caused by a tie-up of Germany's two largest carriers, Spohr can expect little obstruction from fellow airline boss Willie Walsh, head of British Airways owner IAG (ICAG.L).
Asked about a possible takeover of Air Berlin by Lufthansa on Friday, Walsh told analysts he was in favor of consolidation and was less likely than others to make a complaint to competition authorities.
"We will comment in a constructive way," Walsh said. "We won't try and create difficulties when it comes to consolidation, because we don't think that's a sensible thing to do."
Ryanair (RYA.I), seeking to expand in Germany, has already raised objections to the Lufthansa and Air Berlin lease deal.
Investors at the AGM also discussed consolidation. Ingo Speich of fund manager Union Investment said Lufthansa should not make any acquisitions abroad, referring to struggling Alitalia, and added that taking on any more capacity from Air Berlin would depend on the conditions.
"Lufthansa hasn't got anything to give away and should instead put any additional capital in strengthening its balance sheet, restructuring the group and renewing the fleet," he said.
Last week, Air Berlin reported a record loss of 782 million euros for 2016, equivalent to losses of over 2 million euros a day.
While Air Berlin has said it is looking for partners, industry experts expect little interest outside of Lufthansa.
Etihad said this year it would review its European equity partnerships after losses racked up at not only Air Berlin, but also Alitalia, another key investment in its bid to expand its network.
Reporting by Peter Maushagen; Additional reporting by Victoria Bryan; Editing by Georgina Prodhan and Susan Thomas