Unloved But Effective: Air Berlin CEO Mehdorn Steps Down

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The head of German airline Air Berlin, Hartmut Mehdorn, 70, quit on Monday after slashing costs to return the company to profit. He was brought in as an interim CEO but his departure now comes as a surprise. Air Berlin, though in much better shape than it was, isn't back in the black yet.

Hartmut Mehdorn quit as Air Berlin CEO on Monday. Zoom
REUTERS

Hartmut Mehdorn quit as Air Berlin CEO on Monday.

Hartmut Mehdorn stepped down as CEO of Air Berlin with immediate effect on Monday after just 16 months spent on the job, during which he radically cut costs in an attempt to bring the loss-making airline, Germany's second biggest, back to profit. He is being succeeded by Air Berlin's strategy chief, Wolfgang Prock-Schauer.

The 70-year-old manager, who gained a reputation as a tough corporate restructurer when he headed German rail operator Deutsche Bahn, took the job at Air Berlin in September 2011 on an interim basis. The airline urgently needed a revamp because it had turned no profits since 2007, following a hasty expansion under its founder Joachim Hunold, a friend of Mehdorn's.

Mehdorn didn't waste his time and launched a restructuring program called "Shape & Size" to reduce costs by €230 million ($303 million). A further cost-cutting drive called "Turbine 2013" is following this year.

Under Mehdorn, Air Berlin has cut routes and postponed plane orders. His main coup was to bring Abu Dhabi flag carrier Etihad on board as a major investor. The Gulf airline increased its stake in Air Berlin to 29.12 percent from 2.99 percent in December 2011.

'In Much Better Shape'

"Mehdorn fulfilled his main goal: to get costs under control," says Sebastian Hein, aviation analyst at Bankhaus Lampe. Air Berlin remains in the red but its losses have been sharply reduced. "Air Berlin is in much better shape than before Mehdorn stepped in. But he didn't deliver proof that the company can generate profits again."

The airline is expected to post a net profit for 2012 when it reports its annual results in March, but this will only be possible because of proceeds from the sale of its frequent flyer programme to Etihad.

Despite the benefits of having Etihad as a financially strong partner, the Gulf airline is likely to have restricted Mehdorn's room for maneuver. There was speculation in the summer that Etihad CEO James Hogan wanted Mehdorn to step down because of the continuing losses. Executives in Abu Dhabi vehemently denied the rumors but there is no indication that Etihad now insisted that he stay on.

Operating Profit Seen in 2014

The timing of his departure came as a surprise after he had said his term would last "definitely one-and-a-half years or possibly longer."

It is doubtful, therefore, whether Mehdorn really believed what he said on Monday, that "the right time for a management change" had come. He is leaving before he was able to complete the turnaround at Air Berlin, just like he wasn't able to implement the railway stock market flotation he had pledged in his 10 years in charge of Deutsche Bahn.

Aviation analyst Hein believes Air Berlin is likely to return to an operating profit in 2014 -- which means Mehdorn's successor will take the credit.

Air Berlin's staff may welcome Mehdorn's departure, though. Resistance to the tough cuts has been mounting. Prock-Schauer may strike a more conciliatory tone than his uncompromising predecessor, which shouldn't be difficult, because there's little scope for further savings.

But Prock-Schauer will face the uneviable task of dealing with costs and lost income resulting from delays to the opening of Berlin's new international airport BER. The opening has been postponed for the fourth time and will not now happen in October 2013. Air Berlin plans to use the new airport as a base for the more lucrative long-haul flights.

Mehdorn is leaving Air Berlin as a respected, but not especially popular corporate hatchet man -- a reputation he is unlikely to lose in this life.

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