By Klaus Lauer
BERLIN (Reuters) - Lufthansa <LHAG.DE> is willing to sacrifice the right to fly some routes to save its deal to acquire assets of Air Berlin, the low-cost airline that collapsed recently, a source familiar with the company's thinking said on Thursday.
The German carrier will submit its proposed concessions to the European Commission before a midnight deadline, including giving up so-called 'slots' belonging to Air Berlin businesses Niki and LG Walter, the source said.
Lufthansa last month signed a 210 million euro (£184.9 million) deal to take over Niki and LG Walter, plus some short-haul planes, to cement its position in Germany and expand its Eurowings budget brand.
But the deal has drawn fire from competitors and consumer advocates who fear Lufthansa would dominate German domestic routes and Austria where Niki, founded by retired Formula 1 world champion Niki Lauda, is based.
Lufthansa already owns flag carrier Austrian Airlines.
The German government, which offered a bridging loan to keep Air Berlin flying until a deal could be done to sell its viable operations, held crisis talks with Lufthansa representatives on Thursday afternoon to discuss concessions to offer to Brussels.
A spokesman for the Economy Ministry declined to confirm or deny whether the meeting took place, as reported earlier by the Bild am Sonntag tabloid. Lufthansa and the European Commission declined to comment.
Lufthansa CEO Carsten Spohr met EU Competition Commissioner Margrethe Vestager on Wednesday in Brussels, where sources said the Commission is leaning towards blocking Lufthansa's takeover of Niki.
The Danish commissioner has gone on the record to express concern that Lufthansa's market position would become dominant on some routes as a result of the deal.
Bild am Sonntag, citing its own sources, said the German government was alarmed that the deal may be blocked and had urged Lufthansa to make further concessions.
The source, who requested anonymity due to the sensitivity of the matter, told Reuters the government might lose the 150 million euros it lent to Air Berlin because the bridging loan was secured against the proceeds of the proposed sale.
Air Berlin, which struggled to turn a profit over the last decade, filed for insolvency in August, leaving the future of thousands of workers in the balance.
Under EU rules, a decision should be made on whether to approve the deal on Dec. 7 although the Commission has the power to extend its review period by two weeks.
In complex cases, the Commission can take up to 90 working days to reach a decision. If such an extension is made, Lufthansa would likely halt its financial support to Niki, forcing it to cease operations, the source familiar with the company's thinking said.
"Niki is on a knife-edge," the person said.
It remained unclear whether the entire Air Berlin deal would collapse if Lufthansa does not win control of Niki - or whether the German airline would pull out and then seek separate EU approval just to buy LG Walter.
Scenting a fresh opportunity, earlier bidders for Niki have restated their interest - including British Airways which, according to Bild am Sonntag, has asked to see its accounts.
Air Berlin and British Airways parent IAG <ICAG.L> both declined to comment.
Niki Lauda said on Wednesday he would, together with travel company Thomas Cook <TCG.L>, like to buy back the airline he founded. "My offer, together with Thomas Cook, still stands," he told the Handelsblatt financial daily.
(Writing by Douglas Busvine; Editing by Elaine Hardcastle)