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FRANKFURT/ABU DHABI (Reuters) - Abu Dhabi-based Etihad Airways said on Thursday it had pulled out of talks with Europe's largest tour operator TUI Group (TUIT.L) (TUIGn.DE) to create a joint venture holiday airline.
As part of the deal outlined last year, Etihad planned to buy Air Berlin's (AB1.DE) leisure airline Niki before combining the business with TUI's airline TUIfly.
The Gulf airline, which owns almost 30 percent of Air Berlin, appointed a new chief executive in May in a move analysts said gave it a chance to rethink expansion plans that have involved buying minority stakes in airlines.
Etihad said it had not been able to reach agreement on the nature of the venture despite "many months of negotiations".
TUI said Niki was "no longer available" for a deal.
Etihad and TUI declined to give further details.
One source familiar with the issue said: "The deal didn’t work out because it didn't make sense for Niki, it didn’t add up."
TUI said in a statement that a strong European leisure airline would make sense given overcapacity especially in the German market.
"We will push the repositioning of TUIfly further ahead in order to develop long-term prospects for the airline and its employees," TUI executive board member Sebastian Ebel said, adding it remained open for partnerships and joint ventures.
Air Berlin had already received 300 million euros (£260 million) from Etihad for Niki, Air Berlin had said in its annual report.
Etihad said the leisure operations of Air Berlin group would continue to operate as a separate business unit under the Niki brand. "Further details of this structure will be announced in due course by Air Berlin," Etihad said.
Etihad named Ray Gammell as interim CEO and also appointed a new interim group financial officer following the failure of Alitalia, in which the Gulf airline had a 49 percent stake. Alitalia sought bankruptcy protection with $3.3 billion (£2.5 billion) of debt.
Since 2011, Abu Dhabi state-owned Etihad has spent billions of dollars buying minority stakes from Europe to Australia in a race catch up with regional rivals Emirates and Qatar Airways.
Shares in TUI AG were down 1 pct at 1,154 pence by 1430 GMT, while shares in Air Berlin shed 7.6 percent to 0.8350 euros.
Separately, Air Berlin said on Thursday it had asked the German states of North-Rhine Westphalia and Berlin to consider granting possible loan guarantees.
Reporting by Harro ten Wolde and Peter Maushagen in Frankfurt and Stanley Carvalho in Abu Dhabi; Editing by Greg Mahlich and Edmund Blair