Hartmut Mehdorn: Berliner sticks his oar into carrier

Hartmut Mehdorn is the chief executive of Air Berlin. One look at his in-tray and you wouldn't want his job. He, on the other hand, seems to be revelling in it.

But then the former rowing champion has a track record in putting his back into it and turning around stumbling giants.

In 10 years at the top of the huge German national railway, Deutsche Bahn, he did just that. Today, he's confident he's going to do the same for the country's second-largest airline. The problems he faces are huge but Mr Mehdorn is a native Berliner, so rebuilding after adversity is what he does best, by the most direct route possible.

"You can not rehabilitate a company with your hands wrapped in cotton wool," was how he described his management style to Der Spiegel magazine in 2008. "I never wanted to be a diplomat."

Last month, Air Berlin filed a second-quarter loss of €66.2 million (Dh307.02m), worse than the €43.9m loss for the second quarter of last year. In the immediate aftermath the airline's shares fell as much as 5.2 per cent, trading at €1.82 - a big drop from €2.50 at the end of last year. Yesterday, they were trading at €1.75.

So why should people here be interested in the performance of yet another European carrier? Well, it lies in the fact that Air Berlin is 29 per cent owned by Etihad Airways.

James Hogan, the chief executive of Etihad, took the holding as a way into the draconian world of regulations that is the German airline market last December.

On the face of it the investment looks challenging. But look at the context, then at the figures emerging from Mr Mehdorn's survival plan and a different picture emerges. Although the patient might not be out of hospital, the signs are the medicine is working.

All airlines in Europe are clinging on by their fingertips. This latest quarter, Air France-KLM posted a consolidated €895m net loss, more than quadruple the €197m net loss accrued a year earlier.

While Lufthansa, Germany's former national carrier, remained profitable in the three months to the end of June, it suffered a 24 per cent year-on-year decline in consolidated net profit to €229m. And its campaign to strip out €1.5 billion in costs and cut many as 4,500 administration and catering jobs from its 120,000-strong global workforce has plunged it into a damaging series of strikes by cabin staff in the past few days.

If the action spreads across Germany, it could cost Lufthansa €12m a day, according to Peter Oppitzhauser, an analyst based in Zurich at Credit Agricole.

On the other hand, behind the gloomy headlines for Air Berlin, its second-quarter figures showed costs reductions were €45m, €5m greater than anticipated, and sales rose 1.7 per cent to €1.14bn.

The airline is now on target for an improvement in earnings of €230m by the end of this year, and a reduction in debt of €300m, to about €500m.

All delivered despite the general industry carnage.

"We were able to compensate for sharply rising external costs with internal measures," says Mr Mehdorn. "The revenue growth shows that we are on the right track. We will enter the profit zone as planned next year."

Capa - the Centre for Aviation, the leading provider of independent aviation market intelligence - is also cautiously upbeat.

"Air Berlin's net loss for the second quarter was worse than anticipated by analysts but the German carrier was not alone in doing so," Capa noted in an assessment paper published at the end of last month.

"The company's expansion drive of the past five years had eroded its financial position and blurred its positioning … Its membership of oneworld and Etihad's shareholding should assist the airline in finding its future as a full-service carrier.

"Bringing Air Berlin into profitability is a major undertaking [but] restructuring efforts are delivering … results."

It should be no surprise to watchers of Mr Mehdorn. His life story is one of getting to where he wants to be, regardless of the obstacles ahead.

His family is from Berlin but he was born in 1942 in occupied Warsaw, where his father was serving as a German soldier. When he and his mother returned home they were evacuated to Bavaria, not returning to Berlin until 1953, where, he recalls wryly in his memoir, he was promptly beaten up for wearing traditional Bavarian shorts.

Growing up, his first ambition was not to be a captain of industry but a pilot and that took him to Berlin's Beuth University and an engineering degree - his thesis was on jet turbine technology. That was during the Cold War, where his status as a West Berliner exempted him from national service. But he still wanted to fly, so he volunteered for the Luftwaffe, again achieving his aim.

In Mr Mehdorn's path today are crippling fuel prices, the Arab Spring aftermath, which has curtailed large chunks of Air Berlin's tourism market in North Africa, a German government that has imposed a crippling travel tax, the European Union's emissions charges for all airlines flying in and out of European airspace and an ongoing euro-zone crisis. He has also been dealt a major blow by the delay in opening Berlin Brandenburg International airport, due to open on June 3 and now officially postponed to next March.

His response has been the "Shape & Size" cost-cutting programme. Under it, Air Berlin has cut routes and frequencies, reducing capacity by more than 1 million seats and put on hold 19 jets due for delivery this year and next.

It is also closing bases in Erfurt and Dortmund, shaving a further €405.3m from spending and concentrating on the Berlin, Düsseldorf, Palma de Mallorca and Vienna hubs.

Mr Mehdorn is used to pulling himself to the front, having taken part in the German national rowing championships.

The engineer graduate would rise in 1980 to become executive board member for coordinating production, purchasing and quality control at Airbus Industrie in Toulouse, France working on the development of the first Airbus prototypes.

It was in Toulouse where he met his wife, Hélène Vuillequez, a Frenchwoman, and even his domestic life became a negotiation. He has admitted he still speaks English with Hélène because they didn't know each other's language when they met and still don't. And now his house is a veritable linguistic smorgasbord with his wife speaking French to their three grown-up children while he speaks to them in German.

From 1989 to 1992, he was the chief executive of Deutsche Airbus and its restructuring to become a successful aircraft manufacturer was largely down to him. He was also responsible for managing the transfer of the Airbus final assembly to Germany in the early 1990s before leaving the company in 1995.

Last September, he was brought in to Air Berlin to replace then chief executive Joachim Hunold, who had transformed the airline from a small charter operator to a major European carrier and a oneworld alliance member-elect.

Part of that was the deal he negotiated with Etihad's Mr Hogan in December. Etihad's stake in Air Berlin's plan for a return to profitability is a US$350m (Dh1.28bn) package of financing and loans. In return Etihad is gaining an already functioning European network off the shelf, according to Paul Gregorowitsch, Air Berlin's chief commercial officer.

"Etihad is a young airline, a point-to-point airline. We are a network airline sitting in the heart of Europe," says Mr Gregorowitsch, a former KLM senior executive. "Our market includes the top-level management at the top companies in the world. Siemens, BMW, global household names, and the 3 million names on our loyalty programme now belong to Etihad, too.

"Hartmut got a good deal from Etihad. He is, after all, one of the sharpest business executives in this country today. But they got a good deal from him, too."

When Mr Mehdorn joined Air Berlin, he gave himself just 18 months to do the job. Speaking in Berlin last week, he said now, at the age of 70, he saw no reason to change his mind.

But given the chance he would have changed his career path.

"If I could have had another job," he said.

"I would have liked once to have been the boss of Porsche because a Porsche is something that no one really needs but that makes a lot of fun."

dblack@thenational.ae

twitter: Follow and share our breaking business news. Follow us

iPad users can read the digital edition of business section as it was printed via our e-reader app. Click here